4 Tips for Conducting an Investment Property Analysis – 2021 Guide
Have you ever thought about investing in real estate? If so, do you know what are the steps you need to take in order to achieve success?
Just like for anything in life, before you indulge in a field or an activity of your choice, you first need to get educated about all the aspects, circumstances and factors, collect data and maybe the most important component – deeply understand the issue. On top of that, you need to stay up-to-date with all the changes on the market no matter what you do, but one thing is certain – all of this is especially important when we talk about the real estate industry.
What is the real estate industry like? Some people would say that it is hectic, risky and difficult to handle. Others would say that it is a heaven when it comes to investments, especially the smart ones, and when it comes to the type of people you can bump into, if you are a part of the industry.
However, it doesn’t really matter what kind of thoughts you have about real estate. What’s important is the fact that there are several fantastic investment opportunities, and real estate is most certainly one of them. Thanks to the rise of cryptocurrencies, everyone is speaking about investing in digital currency, considering it to be the future of investing, even comparing crypto with gold.
Still, the most successful entrepreneurs and investors are aware of the fact that the more diverse portfolio they have, the better – which means that they try to diversify their portfolios, constantly following the trends and tracking the changes on the market, since this strategy has been proven to be the most effective way for gaining profits. If one industry or one company fails, their investment potential will still be good, since they have invested in many different fields, meaning that if one significantly drops, the other will still stay strong. And that’s exactly the moment when people start thinking about stocks, bonds, real estate and other good investment ideas, besides cryptocurrencies such as Bitcoin, Dogecoin or Ethereum.
On top of that, do you know what’s the most searched question on Google, when it comes to real estate? It is the legendary question: How can I become a real estate agent? This information tells you a lot. However, it’s not the same situation if you want to become an agent or a broker, and if you just want to start investing.
There is a couple of things you need to know before you start investing in this field. First of all, just like any other investment, you need to make sure to evaluate everything before you begin the journey. This means that you have to do something that is called investment property analysis, which is the process in which you determine whether the property you have chosen is worth investing in or not. In other words, conducting some kind of analysis is the first thing you need to do, whether you are planning on investing in crypto, stocks or real estate. Still, when it comes to this specific market, there are several tips and tricks you should know in order to get the best out of your investments.
How does it work and what does it include?
According to Privy, when analyzing the property of your choice, or the property you are considering as a good opportunity, you need to take the most essential factors into consideration.
1. The first one is finding all the relevant data about the property or multiple properties that match your preferences
This means that you should get a document which will tell you exactly how the property had performed in the past – meaning how high was the property’s rental income and all the other relevant figures that you can expect, whether it’s profit or expenses. Knowing all this information will help you determine if it’s worth investing or not, because at the end of the day, it’s all about the numbers. Some of the things you should focus on are the income it generates after the operating expenses, all the streaks of income combined, comparing the purchasing price and the operating income, the so called capitalization rate which is nothing more than the property’s value compared to the net operating income which helps you determine whether that property is risky and how much risky it is.
2. The property’s value highly depends on where it is located, so the location should always be in the top 5 priorities when it comes to investing
Why is this important? Not only will the location affect the purchasing price, maintenance costs, but it will also affect your revenue or your profit. The better the location, the bigger the profit. But to be completely sure that the location is great, you need to collect all the info you can, from the previous owners, and you also have to do a lot of research by yourself – finding out as much as you can about the area, the city, the neighborhoods, previous tenants or owners etc.
3. Make sure to find the info about the market, the local and the global real estate range of rents, since this will be the first thing you will do after you acquire a property
After you acquire a property, the first thing you will do is – you will start renting it. Even in case you don’t plan on renting, you still need to find all the info about the market rents in order to be able to calculate this source of income as well, along with the others. There are several websites you could use for this along with the apps and tools that are widely available. The figures you need to find are your future monthly and yearly rental income, since it’s an important factor when deciding whether to invest or not.
4. Decide which property type you should go with. If you know what you want then things will go much more smoothly
It would be ideal if you could be specific about the property type, whether it’s a single-family home, multi-unit home, a townhouse, condominium, or anything else. If you’re not sure about the type, then just determine the number of rooms, bathrooms, square footage, nearby amenities etc. This way, it will be easier for you to find exactly what you’re looking for.