Do the Math
Given that there are terrific buying opportunities in today’s real estate market, the experienced real estate investor learns how to buy at the best price. Real estate investors leave the emotion at the door and replace that emotion with facts, figures and budgets. Quite simply, there is no other way to invest today.
So, now we need to build a reliable checklist that will eliminate surprises and lead us to the bottom line. To build this list, we break expenses into three basic categories.
Purchase expenses – depending on the type property, the investor’s credit history and the lender’s requirements, there can be some variation to the cash requirements at time of closing.
· Down payment
· Attorney fees
· Taxes in escrow
· Recording fees
· Survey costs if necessary
· Title insurance
· Pre-paid reimbursements to seller
Income & expenses – with most investment property, current and projected income and operating expenses affect the property’s value. The buyer should understand:
· Net heating and cooling costs
· Net tax obligations
· Net management fees
· Annual maintenance expense
· Cleaning or janitorial expenses
· Lawn and landscape costs
· Mortgage expense
· Income
Each property presents unique income and expense opportunities. When it comes to gathering this information, more is better than less. Gather as much info as possible.
Immediate Cash Requirements – every property can be improved. Some improvements are superficial while others can represent major expenses. Again, the investor eliminates surprises. Check the following systems thoroughly and be safe rather than sorry by calling in experts for structural inspections.
· Roofing
· Basement
· Heating and cooling
· Exterior
· Windows
· Plumbing
· Pest control
· Asbestos mitigation
· Elevator
· Electrical
The successful investor will expand these basic lists. Get behind the numbers to repair or upgrade these systems and use structural experts to help clarify the property’s true, not emotional value. Your due diligence to these building systems could well determine the success of your investment.
