Five Tips On How to Evaluate Investment Real Estate Before Purchasing (And Regretting Later)!

Wonderful, you at long last made up your mind to actually become a real estate investor and will invest in a rental income property. Or maybe you might be a real estate adviser that ultimately made up your mind that you ought to expand your business activities and service investment real estate. Regardless of your main intention, cheers to you for discovering the way real estate investment property can provide you with the opportunity to supplement your current income.

Alright, so now that you are indeed confronted with your own first investment property opportunity, you will need to determine whether the property investment actually is cost-effective enough for you to pursue a purchase or merely a complete waste of your time and efforts.

Here are a couple ideas that can help new investors to get underway before submitting an offer to buy an income property (and maybe regretting it later).

1) Evaluate the price tag. Review the Annual Property Operating Data (or APOD) as well as other marketing documents you were supplied paying careful attention to the property's cap rate. Cap rate (also known as capitalization rate) is among the most widely-used returns normally used by tax assessors, appraisers and real estate experts that evaluate rental property price and is definitely a incredibly good way for you to develop a speedy decision whether or not the property seems priced to sell. In a case where you have been working with a skilled real estate specialist than he or she can point it out for you and quite likely can advise you how the property measures up based upon its cap rate to the local market. There's definitely a lot more you will examine later, but for now you just are trying to get a quick idea whether you really would like to engage in a purchase seriously. Therefore get started by taking a look at the capitalization rate.

For those of you who are not familiar with it here's the formula: Net Operating Income divided by Sale Price equals Capitalization Rate. Then again there are real estate investor software programs that compute capitalization rate automatically.

2) Evaluate the configuration of the property. You want to consider what the blend of the units are (i.e., studio, one bedroom, two bedroom, three bedroom and precisely how many bathrooms in each). Is the parking sufficient, and is it covered (i.e, with carports) or not covered? Are garages offered for every unit? What about storage space, does the building offer extra storage units for the tenants? In other words, you want to know for certain if or not the investment will have the ability for you to attract renters and if so, does it present room to be able to maintain and perhaps boost the rental cash flow?

3) Compare the property to comparable rentals that recently sold. If you might be working with a real estate professional have him or her run you a comparable market report (or use a good real estate software solution if you got it). This is going to show you the price that similar income-producing properties to one that you'd like to invest in have recent sold. In this instance, focus a great deal more at the price per unit than cap rate simply because the income and operating expenses stated in the majority of listings might just not be precise enough to rely on and compute the capitalization rate.

4) Evaluate the property's location. You want to determine whether or not the property is situated in a decent rental vicinity with high occupancy capable of supporting market rents and minimal turnovers. Drive around the vicinity writing down notes and remarks. Does it have easy access and is it in close proximity to shopping and schools? Search for rent signage to determine exactly how much competition you will tackle. If you don't come across any For Rent signs then jot down the phone numbers of the property management companies and ask them regarding their particular vacancies. The bottom line is this: Do you really feel good with the location where real estate you're planning to purchase is situated?

5) Evaluate the overall state of the property. Take a drive by and around the property scribbling down observations with close focus on the roof, exterior siding, windows, parking locations, and grounds. Don't be timid. If you happen to discover anything that may cause you to offer less than what the property is listed for, shout it out. If your concerns really are sensible and you have a seller willing to listen, wonderful. Otherwise walk away. The last thing you need would be to toss your hard-earned money into a money pit.


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James Kobzeff is the developer of ProAPOD - leading real estate investor
software solutions since 2000. Create cash flow, rate of return, and profitability analysis and marketing presentations for any-size rental property in minutes! Learn more => http://www.proapod.com