How,do I know if iam getting a good deal for rental properties

5 Replies

Originally posted by @Tom Martinowsky :

How do I know if iam getting a good buy on rental properties?  What can I do to make,sure a good buy or a bad buy on rental properties? 

You need to calculate your net operating income of the property. If what you are paying in debt service is lower than your NOI, then you are in the black and not paying too much for the property. Besides that, comps of other properties sold that are similar and CAP rate will help determine if the sales price is in line with the market.

There are different variables that could give you various responses. 

What is the rental market like in your area? What is the total cost of the purchase? Upkeep costs? Is the property in need of any repairs or modifications to pass city or county inspections? 

@Tom Martinowsky

Determining the appropriate price for a rental can be a big hurdle at first but is something that can be overcome with the right knowledge and research. As mentioned before analyzing the numbers is HUGE but you have to make sure the numbers are accurate. It is always best to use the trust but verify mindset whenever looking into a prospect property. The numbers given by owners and agents may not always be in line with reality.

This site is loaded with resources to help you gain knowledge with regards to determining an appropriate offer price as well the NOI (net operating income).

Although the raw numbers of the deal are very important most deals have other factors that are worthy of consideration. This is what I call the "art" part of the deal. For example each property may have different long term growth potential or exit strategies. Much of this comes from talking with a lot of local investors and learning your market well. Some areas may offer higher returns but may be more management intensive or are more risky while other areas may offer more appreciation but have a lower overall cap rate. Try to figure out what arena you want to play in and focus your efforts on learning about the areas those properties can be found in.

Hope this helps!

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