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How to Choose a Good Real Estate Investment Property With a Good Monthly Cash Flow
from: ...Tip! Next confirm with the agent selling the property that all the correct permissions for the property to be built have been provided by the Local Town Hall. Because of the rise in the number of properties that have been built in Spain over the recent years with out obtaining the correct permissions the Government has been forced to take measures to prevent this occurring in the future.
There are basically two ways you can make money from your real estate investment, capital appreciation and monthly rental. In this article we will assume that you are a serious real estate investor and are purchasing this property to rent out and use mortgaging to control 100% of the property with a 30% cash down payment. Note this article does not deal with the no money down methods of property investment which will be covered in a separate article. This article aims to show you how to identify a good real estate investment that can provide you with a good monthly revenue stream and cashflow.
Tip! Private sale Some property sellers prefer to handle their sale privately, by advertising locally. However a private sale may hardly be found.
Firstly, ascertain how much cash you have in hand initially. This amount will determine how much financing you can get and the maximum amount of real estate you can control with your initial sum. Taking our example above, if we have $30,000 in hand, we can use this to control a property worth $100,000.
Secondly, once you do a rough estimation of your initial down payment sum, spend some time going to all the mortgage brokers, finance companies and banks in your area to see if they are willing to loan you money. You would probably need some credit reports and other documentations so as to convince them of your credit worthiness. Some things you would want to learn from your financers include, the interest rate and whether its fixed or floating, the monthly instalment size, whether they have special short term mortgages in case you should identify a good property to flip and re-sell. The financing element of a real estate investment deal is very critical and spending some time shopping around for the best bang for your buck would be a prudent move.
Tip! Be aware of cowboy vendors – they do exist. For example, property agencies with stalls set up at airports or someone who comes up to you in a bar would need to be treated with extreme caution.
Thirdly, now spend some time peering intently at the classified advertisements. You want to ascertain the properties with the best rental yields as if you want your real estate investment to outperform the national rental yield, you would want therefore to look at properties in areas that are high in demand and look for bargain real estate investment deals. Another good way to figure this out is to ask someone who is knowledgeable in property. Ask him for places with good locations for the purposes of rental. A quick tip to note, places near the sea and on a mountain always fetch better prices than any other properties. Thus even commercial properties with a sea view command a slight premium over properties that do not have a sea view.
Fourthly, now after identifying on paper the bargain properties within your budget, start making appointments with real estate agents to look at properties on your list. If you make it clear that you are looking into property investment and that you might be a frequent customer, then there is a chance that these real estate agents would welcome you and inform you of other real estate bargains that you might be not aware off.
Tip! Upgrading the heating or air conditioning system will make your property more saleable without necessarily bringing a good return for investment. If you are going to be in the property for a few years you may still get a return in energy saving.
Fifthly, always make it a point to be early for the appointment and spend some time observing the surroundings of the real estate in question. Things to take note off include, a bad neighbourhood, no human traffic if you are looking at a commercial property, inaccessibility, no car porch or parking facilities or something that your intuition tells you is not right with the property. This is even more so for bargain properties and auction properties as there might be something very inherently wrong with the property. Spend sometime talking to the neighbours and ask them about the neighbourhood and then ask them if they know of anything wrong with their neighbours property.
If you are purchasing a run down property, you would want to bring along a contractor and building engineer or architect to inspect the property with you so that you can estimate how much you might have to spend to spruce up the property and later rent out or sell. Once you have ascertained the real estate investment is good for your purchase, start asking about rental yields of property in the area and what price the agent will be able to rent out your property.
Tip! Very large trees close to your property that grow quickly with large roots. Very large trees create ongoing maintenance problems that a property owner must deal with on a regular basis, including potential foundation and plumbing problems, not to mention expensive pruning of high branches.
Finally, once you have the property price, the mortgage instalment payment, the rental yields, and operating expenses, spend some time generating a spreadsheet to estimate whether your purchase is viable from a monthly cash flow perspective. You want to find the property with the best cash flow for your real estate investment. Once you find one property like that, spend your energy finding other similar properties and you will start seeing your monthly income rise.
Note that generally you are more likely to encounter surprises as opposed to surprise income, so factor this into your calculations. Remember to keep some money in your bank account to take into account things like changing of tenants where a month may go by without any rental coming in and you must be able to pay the monthly bank instalments. Also take note of where in the rental cycle you are purchasing the property, a property that may be in positive cash flow now, may not be so in the next few years.
Tip! You have now decided on the location and sort of property you want to buy. Now is the time to start contacting the various agents (both on the internet and in the location directly where you are looking to purchase).
In conclusion, this article has highlighted ways to ensure that you have a good grasp of all the different ways to choose a real estate investment property that will yield you a positive cash flow. Note that always remember that Murphy's Law may strike at any time so keep some extra cash in your bank when preparing to purchase a real estate investment property to hedge against such uncertainties.
By Joel Teo 2006 All Rights Reserved
Joel Teo is the owner of several websites and takes a keen interest in real estate investment. For more real estate investment articles and resources go to Real Estate Investment articles.
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