Like, almost everything else, in life, buying and owning investment real estate, must be considered, at a risk/ base/scale reward! While many have earned their fortunes or supplemented their income, purchasing these types of properties is not true for everyone! There are many possibilities, both positive and negative, and a smart buyer/investor recognizes, understands and analyzes as many of them as possible to make the smartest decision. With that in mind, this article will briefly attempt to consider, examine, review, and discuss some of these types of considerations, variables, etc.
1. The purchase price: The process begins by closely examining and considering whether the price at which you purchase the property will serve your purpose. Do you know the realistic range of rents you could charge, for tenants’ leases, etc.? How easily should you be able to rent them so that there are fewer vacancies? What could your cash flow be, after considering your financial results, both upfront and monthly? How will you determine the rents you charge? Are you sure you’re not overpaying for this investment? What rate of return are you looking for and how will you get there? How realistic are your goals?
two. Required Updates: What condition is it in? Will you need to do certain repairs, upgrades, etc., at first? If you think you’ll need to upgrade soon, what will your strategy and approach be, and will you be disciplined enough to create a realistic and workable timeline? Remember to factor in any expenses in these areas you’ll need to determine your total purchase cost!
3. Potential improvements: Fully consider and budget for future upgrades that you imagine will need to take place! When you determine this and adjust your projections accordingly, you begin to better understand the correlation between potential rewards and possible risks.
Four. Aesthetic and structural: There are 2 basic forms of upgrades to consider, cosmetic and structural. Obviously, the latter cannot be delayed, whereas sometimes it can delay the former. However, if it makes sense to immediately proceed with a cosmetic change, it is important to weigh whether doing so could make the property more sought after, viable and potentially capable of generating enough additional income to make this a smart approach. Before you buy, it’s important to have the entire structure thoroughly examined by a qualified home inspector or engineer, in terms of its overall quality and expectations.
5. Rental income: Examine, at the bottom end, what the property (unit by unit) could offer, in terms of rental income. Make your projections, based only on about 75 – 80% of these figures, to make sure you can handle the cash flow!
Examine the potential investment property, using the risk/reward approach! Don’t do this emotionally, but do it in a logical and analytical way!
