5 Things you must do before purchasing investment real estate

First and Foremost when investing in real estate, you must find great deals; not good deals, but great deals with plenty of equity, cash flow and multiple exit strategies. These types of deals can withstand mistakes, surprises and worst case scenarios such as the recent bust, where home values dropped approximately 40% in some areas and financing became extremely tight.

Here are 5 things to make sure of before purchasing investment real estate.

1. Purchase at Max 70% LTV – Total cost of purchase, fees and any repairs must be a maximum of 70% of the current market value of the property. To do this you must get a lot of deals in your pipeline and cherry pick only the best ones. It is a numbers game. In some areas you can find deals at 50-60% LTV.
2. Rents are 1% of purchase – A property that rents for $1000/mth should be purchased for no more than $100,000, or rents are 1% of purchase. In some areas you can find great cash flow by purchasing where rents are 1.5-3%
3. Have multiple exit strategies – With equity, cash flow and flexible financing you can sell at retail, sell to an investor, wholesale, seller finance a sale, lease option, rent and hold, refinance, possibly sell the note, sell the entity holding title to the property, quick claim deed the property to transfer title, etc, etc. You have many options to make our deals successful and can withstand worst case scenarios.
4. Do thorough due diligence – Always, always, always do thorough due diligence. Inspections, CMAs, multiple rehab bids, etc. No if ands or buts, do your due diligence and confirm you have a great deal.
5. Consult experts – Mentors, associates, agents, contractors, local experts, local REI Club, fellow BiggerPockets members, even mail carriers and neighbors, can give you tremendous expert advice and help confirm the property is worth investing in.

Photo Credit: ElektraCute

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