In this episode of the High Return Real Estate Show, Jack and Shecky dispel all the myths around the proper analysis of a property and how to avoid analysis paralysis. Learn the specific metrics you need to understand when investing in a property so that you can make decisions quickly and keep moving forward.
Key Lessons Learned:
- The first aspect of a property that you have to analyze is price. The biggest mistake beginning investors make is overpaying for a property. You have to compare the property you are considering to other similar one’s on and off the market.
- The buy and hold mindset involves playing the long game, selling a property after a year makes it very unlikely for you to profit from the transaction.
- Forcing appreciation by rehabbing a property is solid way to create the increase in value that you want.
- The market value of a property can be very different from the appraised value. You have to look at the price in the relation to the rent it can generate and not against what other properties around it have sold for.
- Taxes alone can make it impossible to cash flow a property in certain areas of the country. You have to make sure the taxes on a property make sense for the area and that the deal makes sense. You should also understand the tax regulations for the area you are considering making an investment in.
- If the area you are looking at is subject to natural disasters like a hurricane, you have to have the cash flow to protect yourself in the situation where the insurance rates go up. Insurance and investing is all about risk tolerance.
- Property management is another major consideration. Long term, the more expensive, hands on property management ends up costing you less money. Your threshold for communication has to match up with your property manager, have a conversation with them before signing a deal.
- You should be saving at least 5% of your rent income and set it aside for the inevitable repairs that you are going to need to make. Adjust that amount based on the condition of the property and the ability of your property manager. Trust in who you are buying from very important, doing business with someone who isn’t trustworthy can be very costly.
- Rarely do vacancy rates and rental rates match the real world. The variance in vacancy rates depends on a number of factors. Newer investors should stick to single family units. Duplexes and quadplexes will always have a higher vacancy rate.
- Property class can vary, but stability is an important factor in whether a property is worth investing in. Investing in a C class property can be very profitable if you have the right property manager in place.
- Looking at a map of an area doesn’t give you a true idea of what is going on with any particular property. If you really want to see what’s going on, you have to see the area in person or trust the company you are investing with.
- The laws of the area in regard to landlords and tenants should also be considered when analyzing a potential property.
- Many investors use analysis as an excuse to not make a decision. You should take only the amount of time you need to understand the metrics talked about in this episode. Every day your cash is not deployed in an investment, you are losing money. Analysis paralysis is costing you money.
- Property Management
- Vacancy Rate
- Property Class
- Crime Rates
- The Local Laws