You should never invest in real estate without going into in with your eyes wide open. Before purchasing any investment property, you need to clearly understand where ‘deals’ are (and aren’t) … and be able to oust any that aren’t lucrative.
Relying on expert advice can help steer you in the right direction. While real estate attorneys, local experts, Realtors, accountants, lenders, business associates and neighbors can all potentially offer insight into investment opportunities that might be out there for the taking, you need do your homework.
Due diligence is the name of the game:
*Research any relevant market data (comps … stats).
*Know the market inside out (what’s selling… what’s recently sold… and equally important what has not).
*Rely on a knowledgable local real estate expert for up-to-date market information.
*Hire an attorney who specializes in real estate investment property.
*Contract with a reputable inspection company to analyze the property, and ascertain whether your investment is everything it appears to be on the surface.
In buying investment property there are 3 really important things to keep in mind:
1) LTV: Maximum 70% LTV on the purchase price. Whatever the market value of the property, look to pay up to (and not above) 70% LTV. That 70% needs to include any and all repair/renovation costs as well as any additional costs associated with the actual purchase of the property. The real estate market, historically, has held it’s own, long term … In our current economic climate, real estate has unquestionably fared bettter than the stock market, globally. The majority of real estate that’s selling now is doing so at/or just below market value. Acquiring property below current market value will allow you a bigger profit margin, as the real estate market swings upward again (which it will, eventually… because that’s what real estate does… it ebbs and flows … and historically it appreciates over time.)
2) Income Revenue (Lease/Rent): To maximize your return on investment 2-3% of your purchase price is the minimum income revenue that most investors shoot for, nationally. In Miami, most investors aim closer to a 3-5% income revenue (on residential property)…. and obviously a 5% income revenue will make for a substantially stronger real estate investment.
3) Risk Mitigation: Have a back-up plan and a way out in case the market takes a tumble or there are other unforseen economic dips. Go into it knowing you’ll can lease out your property (that there’s a market for that)… but…make certain that you have other available options on the back burner. Know the market well enough to gauge whether you will easily be able to unload the property, should the economy warrant that. Go into it with sufficient equity as to give yourself a cushion. And make sure you have a back-up plan, just in case you need to unload the property: whether through resale, the offering of seller financing, leasing it out with an option to buy, through quick claim deed, or through a number of equally creative exit strategies.
There’s a substantial amount of information available online. Before buying any investment property, investigate your options and analyze the data before jumping in head-first. Know what your expected Loan-to-Value (LTV) will be… Know what your Return on Investment (ROI) will be … and be ready with a back up plan, should you need to mitigate your losses and move on.