Most times, experienced real estate investors focus attention on techniques of making money instead of determining whether a potential real estate transaction will be viable. Finding a good real estate deal is quite important because it is the key factor to the success of your business. However, there are important factors or variables you need to consider when looking for a property that worth investing on.
A good real estate deal does not just fall from the sky rather it requires experience, research as well as education to pull through. Here are the top five things to look for in a potential real estate deal.
A fair cash flow is one that is capable of generating enough cash to provide you with fair cash-on-cash return on the overall. The investment into real estate is a big alternative to investment into stocks and the exchange is lower liquidity.
Therefore, it takes longer time to liquidate the asset in real estate investment. This makes it compulsory for you to have good fluid returns in the form of steady and long lasting cash flow coming into your pocket.
The tendency a property has to provide cash flow is dependent on the following factors: interest rate placed on the financing, the strength of the rental market in the neighborhood, single-family or multi-family property and the amount of upfront payment you make. With all these factors in place, will the property be able to provide income?
Equity in real estate comes in various forms such as a foreclosure, discounted price, poorly managed property, etc. Although there are many ways to create equity, but buying into equity should be your major aim, how?
Look for an interested seller who is ready to give up his equity for an amount that is less than the actual value and buy from him. Also, you can buy a property that needs serious repair work which can be carried out at a cheaper rate.
Investing in a good real estate deal is considered a low risk and low speculative business especially when it is already a performing asset on the day of closing as it has the potential to give you immediate returns. So, when investing in a potential real estate deal, it is wise to look for low risk and speculative one such as turnkey rental real estate because it reduces risk and time commitment.
A smart real estate investor will always buy a property in the right neighborhood at the right time of real estate cycle. This will result in the abundance of appreciation and profit. However, getting the actual timing cycle is difficult and highly speculative. So, the only way to pull through is to combine fair cash flow and buying into equity.
Leverage plays an important role in securing a good real estate deal. An investor can buy many properties because of the amount of money allotted to each property. An increase in the price of a property leads to a massive profit for the investor. However, if the price goes down, the reverse is the case.
Negative cash flow is always a short term issue which can be handled if you have cash reserve. Leverage mostly favors long term players in the real estate market.
Finally, when you sum up these factors, pulling through a good real estate deal will be very simple.