Does being financially ready for retirement sound good? Does passive income that requires little work sound good? Does additional income now sound good? There is a lot of potential with investing in real estate, if done wisely.
When is a good time to invest in real estate? Anytime can be good, seriously. The details of a specific property are more important than the timing of a purchase. That’s not to say timing shouldn’t be a factor and, fortunately, at the time of this posting timing is quite good. There is good demand for rentals and that means tenant demand for your rental properties if you have the right property. The local economy is strong which is good for local businesses, employment, and population stability. And, real estate values tend to continuously increase. Having the right property is extremely important and this considers location, type, size, material condition, permitted uses, and more. Many people rent because they simply don’t want to purchase, or perhaps they couldn’t afford to purchase, or maybe renting suits their business plans.
The key is in knowing what you want to get out of properties you may buy and in properly evaluating those properties before you decide to buy them. What does that mean? Well, there’s a lot to it but it’s easy to understand. Real estate investing requires a large amount of money and it’s very important to make the right decisions. Failing to thoroughly evaluate a property can lead to a wrong decision that hinders an investor from making any money or, worse, loses money. Also, taking too long to evaluate properties and to make a decision to buy can result in someone else buying the property before we’re ready. Let’s set ourselves up for success and start with knowing what “evaluating properties” and being “ready” should entail.
Here is a checklist we use when assisting our investor clients. Occasionally there can be other items to add, yet this list is a good start.
- Identify the goal for investing. Is it immediate cash flow? Retirement cash flow? Tax benefits? Business growth? Property development?
- Preferred means of purchase. A loan? Cash?
- Type of property. Commercial? Residential? Land?
- Timeframe for purchase
- Calculate capitalization potential (return on investment)
- Calculate gross and effective income
- Calculate operating costs
- Calculate value of the real estate in view of income potential, costs, and capitalization.
- Evaluate the property’s material condition and utility (ability to use or need to renovation)
- Consider ordering an appraisal and inspections by licensed professionals
- Conduct land assessments for land purchases (i.e., identify ability to use the land for desired purpose)
- Identify taxes
- Decide on type of ownership
- Review property/community management services
- Identify easements and other use restrictions
- Research current zoning and possible zoning changes, and other use restrictions and opportunities
- Research planned nearby development and assess their impacts
- Analyze market trends for rental (tenant) demand, consumer demand for prospective businesses that may reside in the investment property, local economics, population movement.
Investing in real estate involves much more than just finding a property that one can afford to buy. A detailed evaluation should be conducted to ensure that a property has potential to be a good investment. Not all properties are worth buying.
If you’re interested in investing in real estate, reach out to us. We would be happy to hear more about your interests and to provide more information. We are experienced with helping investors.
