Research and Evaluation as a Key Factor in Acquiring a Profitable Real Estate Property
http://www.sitecontent.com/Research-and-Evaluation-as-a-Key-Factor-in-Acquiring-a-Profitable-Real-Estate-Property/a11389_1
Abdullahi Waziri
By Abdullahi Waziri
Published on 05/17/2009
When it comes to rental property, the key to profit is not found in appreciation or depreciation, but in cash flow. The income operating statement can tell you what you need to know about cash flow. This set of forms breaks down all the expenses and income associated with a property. It is a favourite tool of appraisers and professionals in the real estate business and should be a favourite of yours as well.
Research and Evaluation as a Key Factor in Acquiring a Profitable Real Estate Property
They say a bargain in one city is a rip-off in another. When dealing with real estate properties, you need to know your market. Know what property is worth. This means more than asking price. You must know how much other properties in the area are going for. Get familiar with asking prices, closing prices and the all-important difference between the two.
Know how the deals are being struck. What sorts of down payment are expected? How are deals being financed? Are sellers looking for top dollar or a quick exit?
Now, how do you find out this information? One way is to simply ask. Find a real estate agent or broker familiar with the area and put the questions to him. Check out the agency's listings to get a feel for the area and its relative value. Ask your banker about the value of a building. Being the ones to approve mortgages, bankers know a lot about the relative value of one property over another.
You can also check publications such as Commercial Record (listing sales figure by town) or go the local town hall (a veritable feast of information awaits) and check out property transfers for your target area. This is where you will find actual sales prices, listed in land records, rather than asking prices. Remember that there is often a big difference between the two. Here is where we get down to the science. Anytime you can turn a subject into numbers do so. Purchase price, expenses, income and mortgage payments are all of primary concern in evaluating whether or not a property can be profitable. Always look at these numbers in concert with one another and try to fit as many aspects of the property into these numerical categories as possible.
A leaky roof is n expense, as is peeling paint and a faulty sprinkler system. Attach numbers to these expenses-either the cost of repair or the possible decrease in rent you can get. Vacancies are an expense. Renters are income. Mortgage payments are constant. Balancing all these factors can mean profit or loss. You should know which it will be before you ever sign any papers.
Know how the deals are being struck. What sorts of down payment are expected? How are deals being financed? Are sellers looking for top dollar or a quick exit?
Now, how do you find out this information? One way is to simply ask. Find a real estate agent or broker familiar with the area and put the questions to him. Check out the agency's listings to get a feel for the area and its relative value. Ask your banker about the value of a building. Being the ones to approve mortgages, bankers know a lot about the relative value of one property over another.
You can also check publications such as Commercial Record (listing sales figure by town) or go the local town hall (a veritable feast of information awaits) and check out property transfers for your target area. This is where you will find actual sales prices, listed in land records, rather than asking prices. Remember that there is often a big difference between the two. Here is where we get down to the science. Anytime you can turn a subject into numbers do so. Purchase price, expenses, income and mortgage payments are all of primary concern in evaluating whether or not a property can be profitable. Always look at these numbers in concert with one another and try to fit as many aspects of the property into these numerical categories as possible.
A leaky roof is n expense, as is peeling paint and a faulty sprinkler system. Attach numbers to these expenses-either the cost of repair or the possible decrease in rent you can get. Vacancies are an expense. Renters are income. Mortgage payments are constant. Balancing all these factors can mean profit or loss. You should know which it will be before you ever sign any papers.