The 5 Things You Must Know About Evaluating DealsPosted on April 5, 2013 by
Focusing on current real estate comps will prepare you for making deals happen in today’s real estate atmosphere. Are you ready to dive into the real estate market by investing in a rental property? The opportunities are ripe, but don’t make rookie mistakes. Follow these tips and you’ll be on your way to securing a successful deal.
- Don’t trust the owner’s numbers. Your due diligence should involve checking with unbiased sources to determine the expenses, maintenance fees, leasing commissions and other costs associated with any property. Double check data provided by the broker or seller using your own real estate comp source . Talk to another apartment owner. Check public records. Confirm all numbers so you know exactly what kind of expenses to factor into the deal.
- Don’t underestimate property taxes. Factor in the right property tax amount, not what the current owner had been paying, particularly if it’s a long-term owner. Your property taxes could be based on the sale price. Check with the county assessor for accurate numbers.
- Give special attention to the big-ticket items. The heating system and roof can be your biggest headaches and most costly repairs. Know what you’re getting into. Have them inspected by HVAC and roofing specialists, respectively, not a general inspector. Issues are not a deal killer, however. In fact, it can work in your favor and give you the negotiating room to improve the deal.
- Don’t fall in love. Remove yourself emotionally from the property. Look at a lot of properties before you commit. Don’t go for the one you love and try to make the numbers work. Look at 20 properties, make offers on 10 and hope one is accepted. If you get one or two accepted offers, you’re probably in the ballpark. If you get more than that, you’re probably offering too much. Don’t base your offer on the owner’s asking price. Once you’ve been in the business a while, you will realize there are a million reasons why an owner might want a certain amount for a property, irrespective if it’s realistic or not. Run your own numbers to determine what sale price will work for you.
- Always have a reserve fund. Don’t use your entire investment capital on the down payment. Set a goal to have one year of mortgage payments in the bank to get you through turnover cycles and unplanned maintenance expenses. Your financial analysis is for even keel expenses, but even keel is more of a long-term proposition. Short-term fluctuations are the reality.
Following these 5 tips to evaluate any real estate investment deals you find to ensure that you get the best deal. Learning to stay on track with these simple steps will definitely save and help you make money at the same time! Use your REIAComps membership support system to learn more about the tips and information you need to know before you actually close on the deals.