Mortgage Blog

How to Analyze a Real Estate Investment Opportunity

November 14, 2020

real estate
Investing often requires taking a risk and hoping it works out. When it comes to real estate investments, you're putting large amounts of money on the line in the hopes of a positive return. Find out how to analyze a real estate investment opportunity so you know if you should take the chance or not.

Our minds analyze scenarios daily and scan for opportunities. Checking the weather outside before going for a walk, scanning prices at a store, or looking at potential new jobs are all examples of trying to find an opportunity that betters ourselves or our lives. An investment opportunity is similar, although there are financial implications involved that can either scare or entice you. Being able to analyze a real estate buying opportunity can make the difference between setting yourself up for retirement or end up getting a second job to pay for your mortgage and bills.

Here are a few ways you can analyze a real estate investment opportunity to find out if you should go for it or pass.

Know what you're looking for and examine prices in your market


As with buying anything, you first need to know what you’re looking for. Do you want to buy a single-family dwelling or a multi-unit property? The latter costs more but can generate more rental income. Make sure you check other comparable real estate MLS listings that are similar in size and amenities so you can have a rough idea of what you should be paying.


Follow systems that have worked in the past


There are investment strategies that have a proven track record of working. Before investing, make sure you know what the processes and strategies are and follow them. You need to stick to a plan and follow it through. If not, one mistake can cost you gravely. Also, don’t go in blindly. Find out everything you can about a property before even considering making an offer. Remember that repairs need to be added to your budget, as do other issues that will arise, such as permits, contractor problems and behind the wall issues.

Evaluate potential cash flow


A big misconception about real estate investing is that you buy the property, fix it up and rent it out. Sadly, it’s not that straightforward. To start, you will need to work out what your mortgage payments will be. You then need to make a list of all associated costs. Are you or the tenants paying utilities? Are there HOA fees attached to the property? Are you planning on hiring a property manager? These factors and more will dictate how much cash flow you will be able to bring in on an investment property.

Get the real data on a property


Estimating and ballparking figures can help with getting rough calculations on costs, but to truly know how a property will work as an investment, you need to find out the real data on a property. This means finding maintenance records for the building to see if it’s due for assessment, knowing when big-ticket repairs are needed like electrical, plumbing or roof work, and asking to see tax returns from previous years.

Investing in anything is a major decision that needs to be investigated from all angles. Make sure you know what you're getting into before jumping right in. It is also recommended to use a service of a professional Realtor to find a best possible deal on a market, as well as to avoid any potential problems through the entire buying process.


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