Things to Consider Before Purchasing a Property
If you are in need of immediate cash from a real estate transaction, then cash flow should be one of the biggest factors in deciding whether or not a property is for you. You need to ask yourself, will this property produce an income for me? If you need cash now, but the property you are looking at is in no shape to rent, sell or flip without substantial work, you may want to pass on the opportunity. In other words, if you don’t have the time to do a lot of repairs, don’t buy a fixer upper with the “hope” that it will work itself out.
Leverage is another factor that you should consider before purchasing any property. The more money you put down on the property, the less you can put down on another. You want to make sure that the properties you are investing on are solid investments because the money you put down on them will ultimately determine whether you have a negative or positive cash flow. The more debt you have in a property the greater your loss could be in the long run. This is why it is important to invest in real estate markets that will appreciate in the long run. If the value of the property goes up, so does your rate of return. Choose your neighborhoods wisely and watch the market trends. You may have to look a little further than your backyard to find a deal worth investing in.
Obviously, if you can buy a property with a large amount of equity, your chances of success just increased substantially. Equity comes in many forms, from huge discounts and fixer uppers to foreclosures and properties that can be rezoned. If you want to invest in a fixer upper, make sure that you are at least getting a discount equal to double of the amount you will have to invest in it to fix it.
Lastly, never invest in any property without assessing your risk. If you purchase a property that happens to depreciate in value, will you be able to rent it for a positive cash flow? If you find that you can’t sell it as quickly as you wanted to, can you survive with less income or will you find yourself in dire straights? All of these questions are worth asking before you make any real estate transaction.
