When it comes to investing, everybody has certain goals and aspirations. However, there are certain guidelines every aspiring real estate investor should utilize:
1. Compare Property Values and Rents
Financial statistics only go so far; the best measure of a property’s market value is often the sale prices of nearby properties. The same holds true for area rent prices. A low price can often be justified by a reasonable rent; renters who can afford a high rent can afford to buy instead, so reasonable rent prices are a necessity.
2. Be careful – Tax Laws May Change
Don’t base your tax investment on current tax laws. The tax code is constantly changing, and a good investment is a good investment regardless of the tax code. As an investor, you should be looking for the right property with the right financing.
3. Specialize in Something You Know
Start in a market segment you know. Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payment properties, condominiums, or small apartment buildings, you’ll benefit from experience by specializing in one aspect of investment real estate properties.
4. Know the Costs Going In!
Know the financial statements inside out. What are the operating expenses? What are loan payments? Vacancy costs? Taxes? What does the cash flow statement look like? These are key issues that must be addressed before making a solid investment.
5. Know Where Your Tenants Will Come From
If the last rent increase was recent, your tenants may be considering a move. If tenants have a short-term lease, they may be living there simply to attract unsuspecting buyers. It is also important to collect the tenants’ security deposits at closing.
6. Assess the Tax Situation
Taxes are an integral part of successful real estate investing, and they often make the difference between a positive cash flow and a negative one. Know the tax situation, and see how it can be manipulated to your advantage. It may be a good idea to consult a tax advisor.
7. Investigate Insurance Coverage
If the seller’s coverage is based on lower-than-current replacement value, your insurance costs may increase when you pay a higher purchase price.
8. Confirm Utility Costs
Ask the local utilities to verify recent utility expenses, especially if any of these costs are included in your tenant’s rent.
9. Consult Your Accountant
Taxation is a key element of successful real estate investing, so be sure to find an accountant who is well-versed with the constantly-evolving tax code.
10. Inspect!
Make sure that you always perform a thorough inspection of the property before buying it. Never, ever buy any property without at least examining the site. In some cases, hiring professional inspectors to examine the structural mechanical system may be a sound investment.