Nobody has a secret formula for successfully investing in real estate, but brushing up on your financial literacy, digging deep into market dynamics, understanding property-specific costs and turning to today’s access to unprecedented data and technology can lead to more-informed buying decisions.
Here are five tips that can help:
• Rule number one when looking at a property online: Figure out how the property performs today as an investment. You shouldn’t assume any type of appreciation, speculation or reduction in expenses over time. “What you’re buying today is what you’re going to live with because no one knows what tomorrow will hold for your property. Most savvy investors do not speculate on what a property might become,” said Dennis Cisterna, CRO of Investability Real Estate Inc.
• A big line item is price. A lot of online marketplaces will factor price appreciation into their analysis. Often, this can be misleading because you don’t always have the knowledge to know whether a market will appreciate, and making assumptions based on previous performance can be risky.
• Another factor to consider is rent appreciation. “It can’t be guaranteed and you shouldn’t speculate that rental increases will be part of your return. You may assume, if rents go up, you might see an equal appreciation in your costs, so your yield may remain the same,” said Wally Charnoff, CEO of Investability Real Estate Inc.
• Also, be sure you understand operating costs. When you own a property far from home, it can be beneficial to rely on third-party providers to manage and repair the home. Therefore, it’s often best to include costs such as repairs, capital expenditures, “turn costs” (when a tenant moves out) and leasing expenses upfront.
• Finally, you must do your due diligence when investing. Regardless of whether you’re buying across town or across the country, make sure that the assumptions the seller uses are in line with the market’s actual costs and returns. Look for an opportunity based on the current numbers, not what some experts may promise about tomorrow.
By understanding the market- and property-level analytics and familiarizing yourself with the service providers in the area, you can be in a better position to make an informed investment decision.
NORTH AMERICAN PRECIS SYNDICATE