Getting into the real estate investment scene can be a lot of fun, and extremely lucrative if you master the art.
However, it is easier said than done. While the basics might seem pretty straightforward, actually finding and evaluating money-making properties is anything but simple.
The good news is that this post is here to help. This guide walks you through everything you need to do to find investment properties that will generate substantial returns.
What you can expect in this article:
Define Your Investment Goals
The first step is to define your investment goals and carefully consider which properties are most likely to fulfil your investment needs. You should write down your budget, expected yield or rate of return, and how much you want properties to appreciate.
Remember, there is a tradeoff between yield and appreciation. High-yielding properties probably won’t appreciate as much over the long term, and vice versa.
The economic reasons for this should be easy enough to understand. Ultimately, what investors care about is total returns. If a property has a high yield and appreciation, the price will rise to reflect this, lowering yield and keeping appreciation in check.
Analyze The Market
The next step is to analyze the market and consider properties most likely to yield the highest returns. What you want is an undervalued property that you think will generate significant returns in the future.
Finding these properties can be challenging. Usually, the price will reflect the expected return. A lower price means that appreciation might be negligible, or not occur at all.
The best approach is to plug into a community that understands the value and where to look for it. For example, the BuyAssociation Group has plenty of information on which properties offer the best opportunities for outsized returns.
What you want is a system you can use to analyze properties that take a correct but contrarian view. Successful property investors identify value units and prove the market wrong.
Negotiate When Securing Financing
The next step is to negotiate the terms of your financing. Ideally, you want the cheapest loan possible to maximize your returns.
This negotiation can take a long time to carry out. You don’t necessarily have to accept the first offer the bank or building society makes you. Continuing to ask for better deals often means that bankers are willing to lower their prices, especially if you have a track record of repayments or you have a knack for buying properties with plenty of equity.
Perform Due Diligence
The next step is to perform due diligence and ensure all the numbers match up. You should know the operating income and projected cash flow of the property, and understand whether it is likely to yield significant returns over the long term.
Also, check for hidden costs. These can be significant and undermine the headline rate of return, making you wish you’d chosen a different property.
Also, be wary of any risks that might apply. Ensure that you have a full title to the property and that nobody else can claim against it.