Looking for real estate to invest in can be very frustrating. Before you acquire real estate for investing, you will need to evaluate it and do a lot of background research to ensure that you make the right decision. Most real estate investors fail in their investment property search due to the inability to properly evaluate real estate. However, successful real estate investors know how to evaluate real estate for sale. Here are some of the things you need to consider on how to evaluate real estate for sale for successful investing.
Things to Consider on How to Evaluate Real Estate for Sale
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Evaluate the Location of the Property
Location is among the main things you need to consider for how to evaluate real estate for sale. The location in which the investment property is in will determine the potential of the property to appreciate over a number of years. A good location should be near amenities such as schools, hospitals, shops and public transportation. There is always a huge supply of tenants and more opportunity for growth in such areas.
Related: Is Location Everything in Real Estate Investment? Debunking the Myth
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Evaluate the Expected Return on Investment
Buying investment property is a risky venture. You should, therefore, ensure that you maximize the return on investment. Since you are tying up a lot of your cash in a single place, getting a solid return should be your major goal.
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Evaluate the Real Estate Annual Expenses
The annual expenses incurred by the property is also a crucial component of how to evaluate real estate for sale. Property expenses can be fixed or variable. Fixed expenses refer to expenses that are recurring such as routine repair and maintenance, property management, insurance, and annual property taxes. On the other hand, variable expenses are those that are unplanned for, such as plumbing, fencing, and replacing the roof.
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Evaluate the Risks Involved in Buying the Property
There are usually a number of risks you need to consider before investing in a property. Could the investment property stay vacant between tenants and lower your total return on investment? What legal expenses may incur should it be necessary for you to evict a bad tenant? What additional repair costs could be caused by a bad tenant damaging the property? Hiring professional property management can help you lower such risks since they will be able to search for quality tenants.
Related: 10 Major Risks of Real Estate Investing and How to Reduce Them
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Evaluate the Financials of the Property
How to evaluate real estate for sale also involves knowing your budget and the value of the property. You should know how much you can put in that investment, how much you can afford to lose, where you will get additional funds if needed, the break-even point, and your monthly payment for the mortgage as well as interest rate. Ensure the rent you can gather from the investment properties can not only cover but also exceed your carrying costs including the mortgage, insurance, property taxes, management, and maintenance.
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Evaluate the Needed Repairs
Checking the number of repairs that a real estate property needs is an important step in how to evaluate real estate for sale. You ought to be comfortable with the amount of work and money that the property will need. Are you able to afford the needed repairs? Are you able to do the repairs yourself or will you need to employ another person or company to do it for you? The cost of doing the repairs will be determined by whether you can do them yourself or if you need to hire an expert.
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Look for Real Estate that You Can Add Value
How to evaluate real estate for sale isn’t complete without checking if a property has the potential for growth. The best investment opportunities in real estate are those with the potential of adding value. A good real estate investor tries to find ways that he/she could add value to a real estate property so as to increase the return on investment. Does the property have an additional space that could be offered for rent? Are there any minor low-cost enhancements that could be done to the property to raise the rent?
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Compare the Real Estate to the Current Market
Property valuation is done by comparing different rental properties to have a better understanding of mortgage rates, property prices, and potential profits. After gathering and comparing such information, a real estate investor should be able to decide the type of property to purchase. Rental comps provide rental listings that can be compared to determine an investment property value relative to other investment properties in a market that are similar.
Related: Rental Comps: What Are They and Where Can I Find Them?
A lot usually goes into the process of purchasing real estate for investment. To find the best real estate investments, the real estate investor needs to know how to evaluate real estate for sale. Begin your free trial today with Mashvisor to get access to numerous real estate investment tools that will guide you on how to evaluate real estate for sale for successful investing.