Finding Investment Properties: How To Evaluate Whether It Makes Sense To Buy It

You might think i’m crazy to talk about investing in real estate during a recession, especially at a time where so many people have lost their shirts because of real estate investments. Well, did you know more millionaires are made during recessions than booms?

Think about it….real estate is on sale. Prices have dropped, interest rates are historically low, and we know the market will come back up, eventually (although around here our market is already showings signs of growth).

So how should you be looking for in a piece of real estate that will make it “worthy” of being held in your portfolio?

That depends (I know, I hate that answer too). What is your long term goal?

Long-Term Investing

1. Find: Select ideal neighborhoods, attract sellers and find houses with investment potential.
2. Analyze: Identify which, if any, improvements to make and analyze the profit potential of any house.
3. Analyze Cash Flow: Obtain mortgage information, vacancy rates, taxes, HOA (if applicable), and budget for maintenance/repair issues versus average rental prices for similar properties.
4. Buy: Arrange financing, present the offer and close on the purchase.
5. Fix: Fix any necessary repairs prior to finding tenants. Keep in mind, not all repairs have to be top of the line (and in many cases, may not be ideal for tenants).
6. Rent: Find qualified tenants to generate positive cash flow.

The “buy and hold” method of real estate investing is good for people who don’t need liquid assets and/or can benefit from monthly income and tax write offs (note: i’m not a cpa! and don’t play one online or on tv). You should also compare the monthly income you’ll generate to the interest rate a bank would pay you if you left the cash sitting in a CD or other account. Which is higher? What about appreciation in addition to monthly cash flow?

I never recommend people buy a property unless you can guarantee you’ll be generating positive cash flow each month. It’s not my money, so I can’t tell you what to do, but if it was MY money…I wouldn’t buy unless I would be pocketing money each month.

Flipping

1. Find: Select ideal neighborhoods, attract sellers and find houses with investment potential.
2. Analyze: Identify which improvements to make and analyze the profit potential of any house.
3. Buy: Arrange financing, present the offer and close on the purchase.
4. Fix: Develop a plan for fixing up the house that keeps you on time, within budget and assures top quality.
5. Sell: Add finishing touches to quickly sell for maximum profit.

Flipping can be tricky if you’re a newbie. You’ll have to consider tax implications, resale potential (if within 90 days of your purchase, you’ll run into some financing restrictions with the FHA), material, labor, permits, etc.

If you’re thinking about investing in real estate and want to talk, please let me know. I’m happy to help you find and evaluate properties for both investments and flipping.