You are viewing the printer-friendly version of Good Real Estate Deal?Good Real Estate Deal?Sometimes beginning real estate investors focus on techniques and they forget to focus on whether this is a good deal. Learning to recognize a good deal takes research, education, and experience. There are several things to have in order to determine if you have a potential real estate purchase is a good deal.Cash Flow - Will this property have cash flow? Determine the local rental market, the interest rate on the financing and how much down payment you are going to make. Is this a single or multi family dwelling? Also consider the factor of income, how important is it to you? Do you need income now or is future equity growth what you're looking for? Consider all these things before purchasing the real estate. Leverage - The less cash you put down on each property the more property you can buy. This is why leverage is important. If you are a long term investor then leverage will probably work for you if the markets you invest in appreciate in the long run and your income from properties can pay for most of the monthly debt. Equity - Equity can come in different forms; foreclosure, poorly managed property, rezoning opportunity, potential fixer upper, discounted price. There are many ways to create equity, but buying into equity is your best way. Find a motivated seller who wants out of his property and is willing to give it for less than full value. Or, purchase property that needs work that can be done very cheaply. Appreciation - Buying in a good neighborhood in the right stage of real estate cycle will result in appreciation and profit. But, it is difficult to speculate on timing in real estate. It is very risky to purchase property with no equity or cash flow for short term appreciation. It is easier to purchase for moderate to long term appreciation. Risk - Risk is what most investors don't consider. What if things go wrong? Do you have a backup plan? Suppose you bought for appreciation and the property didn't appreciate, can you rent for some positive cash flow? If you have some vacancies, can you handle the negative cash flow or will it break you? Expect the best, but prepare for the worst. aa |