3 Factors to Study in Your Market BEFORE Buying an Investment Property

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When you are making offers on properties, it is important to keep in mind your commitment to the most important individual in your organization: the shareholder. You might be the sole shareholder, or there may be others as well. That’s why you ought to have set criteria on what a productive exchange looks like, and you will need the courage to stay with that criterion in order to have success in real estate investing.

Unquestionably, the way to meeting your objectives and attain success is to understand what VALUE that piece of real estate will bring to your investment portfolio. Understanding the estimation of the potential property is the premise for all stable investment choices.

When you want to buy a car, you do your research to find the actual value. Similarly, if you invest in stocks, you have day-to-day stock indices that can tell you exactly where a security is priced. But real estate is really a lot more subjective, and you have to do your research more diligently in order to gauge the value of the property.

Before buying an investment property, the first and most important thing is to decide where you want to buy it, i.e. the neighborhood. Once you do that, you need to make sure that you figure out the three most important factors in order to understand the neighborhood better. You can do this on your own and take help from a real estate agent who specializes in that neighborhood.

Let’s review these three factors and understand how they’ll help you evaluate the property.

3 Factors to Study in Your Market BEFORE Buying an Investment Property

Market Trends 

Usually media surveys project gloomy outlooks for real estate, but even within the most depressed housing market, there are areas with increasing property values. If you don’t know your local housing market, you won’t be able to find them, and you’ll keep making wild guesses. Therefore, it’s important to understand the market trends. This will help you with negotiations. If you are aware of the actual value of the property, you’ll always have an edge over those who are just guessing.

Another reason for understanding the local real estate market is because certain areas in a given community make smarter investments than others. If you invest in an area where property prices are declining, the chances of you losing money increases considerably. By keeping an eye on trends, you can find good investment opportunities and trail the wave of property appreciation. Don’t hesitate asking for help. You can assist a local real estate agent or call the tax office. Check what has been the recent trends and check it yourself. Don’t only rely on information provided by others.

Selling Prices 

What is the worth of the property in that particular neighborhood? Do you have an idea? You must be aware of the local sales pricing, especially the recent ones because property values can change very quickly. In the current volatile investment environment, it is not unusual for the value of a property to fluctuate within $10,000 – $15,000 in a given month. If you have a property that you are considering selling, you can win or lose a huge amount of money in no time.

Rental Rates

Rents in your local investment area can also help you determine the worth of properties in that particular neighborhood. If you are planning to buy an investment property, it’s important to perform cash flow analysis to determine the prospective rent. Otherwise, there are chances that your cash stream will turn into negative and your investment property turns into a liability.

What are the other important factors that help you decide investing in a particular property?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.