Like, almost everything else, in life, buying and owning investment real estate, should be considered, at a risk/ base reward / scale! While many have made their fortunes or supplemented their income, buying 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 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 with closely examining and considering whether the price at which you buy the property will meet your goal. Do you know the realistic range of rents you could charge for tenant leases, etc.? How easily should you be able to rent these so there are fewer vacancies? What could your cash flow be, after considering your financial results, both upfront and monthly? How are you going to determine the rents you charge? Are you sure you are 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. Necessary updates: In what condition is it? Will you need to do certain repairs, upgrades, etc., at first? If you think you will need to update, soon, what will be your strategy and approach, and will you be disciplined enough to create a realistic and workable schedule? Remember to factor in all the expenses in these areas that you will need to make in order to determine your total purchase cost!
3. Possible updates: Fully consider and budget for the future upgrades that you imagine you will need to make! When you determine them and adjust your projections accordingly, you begin to better understand the correlation between potential rewards and potential risks.
Four. Cosmetic and structural: There are 2 basic forms of upgrades, to consider, cosmetic and structural. Obviously the latter cannot be delayed, while sometimes you may be able to 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 buying, it is important to have a qualified home inspector or engineer thoroughly examine the entire structure, in terms of its overall quality and expectations.
5. Rental income: Examine, at the lower 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 potential investment properties, using the risk / reward approach! Don’t do this emotionally, but do it in a logical and analytical way!