6 Must-Have Features of an Excellent Real Estate Deal?

Dated: July 14 2020

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Everyone wants to land the best deal possible when it comes to real estate. While that is understandable, it is not as easy as it sounds. This article will offer some help in this direction by listing the six things to look out for in a real estate deal.

1. The Location

A real estate deal is not good, except it is in a profitable location. In fact, the rental income or the occupancy rate of any rental property depends on its location. So, it is best to start by researching the real estate market of the city and neighborhood the property is located. Even if there are a few limitations to the property, the location may compensate for such.

An ideal rental property location must have very low crime rates, offer feasible job opportunities, and support high population growth. There must be relevant amenities on the ground, a smooth public transportation system, and thriving tourism industry. Avoid areas that are prone to floods, earthquakes, and other natural disasters.

2. The Listing Price

The type of property you end up with, most times, depends on your financial capacity. However, it is best to look out for properties with low listing prices. Buying an overly expensive investment property is never profitable both in the long and short runs. Conversely, a property bought below market value will most likely yield a higher return on investment.

You can determine the fairness of a rental property price by comparing it with its fair market value. It is most likely a profitable deal if the listing price is lower than the fair market value. If it helps, go for a real estate appraisal to get an idea of the value of the rental property of interest.

3. The Rental Income

Like every other business, real estate investment is all about making money. This is why you should go for a property that offers a HIGH monthly rental income. For best results, it should be as high enough to cover the monthly rental expenses. This will ensure positive cash flow in the end. You can get an idea of the rental income of a property by checking the average rental rates of similar rental properties in the same neighborhood.

The 1% rule of real estate comes to mind in this situation. The 1% rule estimates the rental property's potential to yield rental property cash flow. In ideal cases, the monthly rent is expected to be equal to or greater than 1% of the property's total purchase price. With this, you can predict if you can foot the monthly mortgage payment bill of the rental property with the monthly rent.

4. The Rental Expenses

Another critical factor that influences the rental property cash flow is the rental expenses. This is why you should go for rental properties with LOW rental expenses. There are individual costs associated with buying and operating an investment property. These include repair and maintenance costs, HOA fees, property taxes, mortgage payment, and insurance, among others. Ensure that you know these costs before proceeding to purchase.

A real estate metric that comes handy in estimating rental expenses is the cap rate. The cap rate is the ratio of the net operating income to the actual price of an investment property. The ideal cap rate is between 8 and 12 percent. You can use any reliable online investment property calculators to determine the cap rate of an investment property.

5. The Repair Cost

As tempting as it may be to buy a property at a fixer-upper, it is always a wrong decision. You are at the risk of making little or no profit on an investment property if you have to spend so much on repairs before it can be rented out. The huge repair costs reduce the rental income profit significantly. So, before you settle for an investment property, do a thorough inspection to see the repairs needed and how much they will cost.

If there are no repairs, you can rent out immediately after purchase. This means that your rental income will come in as soon as possible. If you are buying an income property that needs to be repaired, you should factor in the cost of these repairs on your ROI. With this, you can decide if buying the property is advisable or not.

6. The Appreciation

Before you pay for any investment property, consider its real estate appreciation potential. Can it increase in value with time? If yes, how much increase? A property is said to have appreciated if you can resell at a higher selling price.

The local real estate market trends may offer reliable insights into investment property appreciation, so you should check them. If you find any property that meets the six criteria described in this article, you may purchase it with a conviction that you are getting into a good real estate deal.

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