Investing in Real Estate, How Do You Know When You Have Found A Good Deal?

By
Real Estate Agent with Coleman Real Estate LLC

A four-plex goes on the market for $200,000. You offer $150,000. Is that a good deal? Maybe. How did you come up with that offer? For the most part there is really only one question to ask when approaching rental property. Is this property profitable? If the answer is yes it's a good deal. Of course if the answer is no it's a bad deal.  Goes without saying right? Wrong! Many times unprepared Real Estate investors purchase property for all the wrong reasons. Don't get me wrong. I can see how it would be tempting to by an investment property based on location. As a matter of fact you should target areas where houses appreciate at an average to above average rate. However. The price the seller wants for the property has absolutely nothing to do with what you will pay for it. Profitability is the key. Your offer should be based solely on your determined value of the property.

Every investor has his own specialty and strategy. Currently my concentration is on multiunits so when I'm determining the value of a multiunit property my biggest initial concern is annual gross rental income. You have to make sure this number is accurate because it is the bases of all else that follows in determining the value.

TAFN

 

Comments (3)

Sam Miller
RE/MAX Stars Realty - Howard, OH
Knox County Ohio Real Estate Specialist

Tellis - I like your topic and if enough people read it I believe it will cause people to think about the question you pose.  Good investments can have many meanings but here are a few simple things that have been helpful for our clients in Knox County Ohio.

  • Gross rents and the current cash flow (obviously the two are different).
  • Does the property have additional rental income potential? 
  • Are there pending tax or utility increases ahead that would change the operating expenses?
  • Does the property need repairs or maintenance in the near future?
  • Will this property appreciate and what direction is this neighborhood headed?

These are not the only factors to consider but they are solid starting points for our clients.

 

Oct 07, 2007 03:02 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Tellis, It is even more basic than that. You can start your analysis with a "rent survey" to determine what the gross scheduled rent should be. The current owners mistakes shouldn't govern your decisions.

Bill Roberts

Oct 08, 2007 05:16 AM
Tellis Coleman
Coleman Real Estate LLC - Colorado Springs, CO

Sam- All good points. Rate of appreciation is in essence part of the value of the property. A lot of that ask me questions about investing don't seem to get this very key point.

Bill- Absolutely. A rental survey could give you a starting bases for gross rents as well as give you a hint as to whether or not you could increase the rents.

Oct 10, 2007 04:44 PM