6 Things to Check before Making a Real Estate Investment

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By guest writer Jackson Cooper

Making a real estate investment is a very important decision. It shouldn’t be taken lightly. So, it only makes sense that you’d want to be prepared before jumping into a deal. Here is a checklist of six things you really need to look into before you invest in a piece of property.

1. What’s the net rental income?

Yes, those nice glossy brochures may look nice, but they don’t necessarily tell you what you really need to know about the investment property. They just give you basic figures of what you may or can earn from potential rental income, with no pure, hard facts.

But, what really matters to real estate investors is the net rental income. All you need to do is create a spreadsheet, which should contain:

  • Monthly mortgage payments (be sure to test different interest rate assumptions)
  • Gross rent
  • Estimates for closing costs
  • All monthly overheads, such as HOA fees, property tax, property management, insurance, etc…

From there, you’ll be able to get a better idea of what your net monthly income will be if you invest in this rental property.

2. Do you want safe long-term bets, or high returns?

The highest yielding properties will never, ever be a safe investment. The reason why they are so risky is simply because you have yet to add value to them. Higher risk properties may bring in higher returns, as they’re generally cheaper than other real estate. However, they may also have much higher:

  • Management costs
  • Maintenance fees
  • Eviction rates
  • Turnover rates
  • Transient tenants

…and, much more. When it comes to higher returns, many investors prefer note investment to traditional bank loans. When investors buy or sell real estate notes, they manage to avoid the associated risks involved with the stock market while generally making higher returns.

3. Do you plan to cut corners?

Many property investors tend to cut corners just to save a few bucks. But, as a landlord, they end up spending more in the long run. Let’s say something is broken. Fixing it properly the first time will keep long-term tenants. When using a cheap and seedy property management techniques and tools, the same things have to be fixed over and over again. Not only is this costly, it leads to unhappy tenants who leave after their leases are up.

4. Will the buyer incentives hurt you later?

I do want to say there is absolutely nothing wrong with a seller providing buyer incentives, because it happens all the time and is legal. Nevertheless, do not make the error of assuming your rental profits will be the same after the incentive is over. You will need to look at all the numbers based on the market rates with standard overheads, too.

5. Are you choosing the right location for the right reasons?

Location, location, location… the three most important factors when it comes to real estate, also extends to investment properties. When buying a home, it’s about choosing a location where you’d love to live. But, when it comes to investment real estate, it’s about choosing property where your ideal tenants will want to live.

Demography is also a very important factor too. You don’t want to buy a starter home in an area where the average resident is 50+. You want to buy a starter home where there is a younger population, to attract families with children.

6. Is it the right time to buy?

Let’s say Apple announced they were increasing their iPad prices by 25%. People would think twice before purchasing, right? Well, the same goes for real estate. You should be purchasing a property when the prices are lower than usual, not the other way around. Remember that the goal is to make the highest monthly rental income possible.

About the author: Ready to investment in Park City, Utah real estate? Jensen and Company is your local source for Park City homes for sale and local real estate news. Visit Jensen and Company online today!

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