Welcome to the second part of our three-part series on how to invest in real estate. If you missed our first entry, you can see it here. Click here to view a .pdf of investment formulas to help you out!
Now that you’ve found a property you like, what happens next? Next, you have to evaluate that property, and there are three important factors to take into consideration.
The first is location. We’ve all heard the saying “location, location, location,” and it certainly applies to real estate investment as well. For example, a busy road can be a positive thing when it comes to real estate investment. Whether the property in question is located in an affluent area or one with a high crime rate is an example of the risk versus reward issue you must deal with when considering the location of your investment property.
This leads us to the second thing you must factor in: the age and condition of the property. We always advise people in this situation to order a home inspection. From that report, you’ll be able to determine what repairs are needed. This can also be a huge negotiating point for driving the price of the property down. You also need to consider the long-term objective of the property. Will the roof need to be replaced in five years? How are the water heater and the furnace?
The last thing you want to factor in is how to run the numbers. The numbers in investment real estate are critical. This means things like the analysis of cash on cash, your return on investment, and the cap rate analysis. In the video above, we have a link attached providing examples of these forms and information on how to calculate them.
Stay tuned for the last part in our series about investment properties. In the meantime, if you have any questions about this topic or are interested in buying an investment property, don’t hesitate to reach out to us. We would love to talk to you.