3 Elements of a Good Real Estate Deal
- Profit potential.
- Appreciation potential.
- Realistic value.
What to Look For In a Good Real Estate Deal
If you’re looking to purchase real estate to rent for investment purposes, but aren’t sure how to identify a good real estate deal, there are a few things you need to educate yourself on before you make your purchase.
A good real estate deal can be based on these components:
- Price vs. value
- Potential profit
- Potential appreciation
Price vs. Value
When looking for a real estate property to invest in, you need to take into consideration the sale price and the current or potential value of the property. If you’re looking to purchase a condominium or home to rent out, look for fixer uppers. Since you won’t be moving into the home or condo immediately, you have time to make the necessary repairs. You have more leverage to negotiate a lower price on a fixer upper. Since repairs do need to be made, you can make the claim that the cost to make the resident inhabitable makes the current selling price unrealistic. But don’t just run out and purchase the first rundown home you find. You need to have it inspected to make sure there is no structural or serious damage to the home. You don’t want to purchase a fixer upper and later find out the property needs hundreds of thousands of dollars in repairs.
The reason you’re purchasing real estate is to make a profit. So, before you purchase a property, you need to look at market factors. As a rental property, renters will be your primary form of income. But if the current rental market is down, you’ll have a tough time finding a tenant who is willing to pay a monthly rental fee that covers the mortgage and net you a monthly profit. If you’re purchasing a property to rent, make sure the property is in an area that has a consistent rental market. Properties near colleges, for example, are a great buy. That’s because not all college students live on campus. Many rent property around the college to cut down on their commute and because it’s cheaper than on-campus living.
Even if you find a fixer upper for a great price, you need to be mindful of the area. The reason you got the property at a great price could be because the area is starting to depreciate. Property value fluctuates over the years and is affected by many factors. If a once affluent area is now burdened with landslides, high crime, or lack of employment opportunities, the property value of that area can depreciate. Even if you can purchase real estate at a rock bottom deal in a depreciating area, doesn’t mean you should. If the property value of a specific area is depreciating, so will the rental price on rentable property, thus lowering your potential profit on the property.
Other Things to Consider
One thing you need to think about when investing in real estate is how you’re going to manage the property. Even if you find a great real estate deal, do you have the resources to manage the tenant and deal with upkeep on the property? Are you going to manage it yourself or outsource it to a property management company? When repairs need to be made, who is going to make them? These are questions you need to ask yourself before you purchase real estate. You don’t want to get in over your head and end up spending all your profits on property upkeep.
Great real estate deals are out there. You just need to know what to look for and what to keep in mind when you’re search for investment real estate. A great piece of property can net you significant profit; but if you purchase unwisely, your investment property could end up being a money pit.