How To Determine If A Rental Property Will Cash Flow The Risk/ Reward Of Buying Investment Real Estate

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The Risk/ Reward Of Buying Investment Real Estate

Like almost everything else in life, buying and owning investment properties should be considered with risk/ reward base/scale! Although many have made their fortune or supplemented their income, buying this type of real estate, this is not true for everyone! There are many possibilities, both positive and negative, and a wise buyer/investor recognizes, understands and analyzes as many of them as possible in order to make the smartest decision! With this in mind, this article will attempt to briefly consider, examine, review and discuss some of these types of considerations, variables, etc.

1. Purchase price: The process begins with careful examination and consideration of whether the price at which you are purchasing the property will serve your goal! Do you know what the realistic range of rents you could charge for tenant leases etc.? How many would you simply need to be able to rent to have fewer vacancies? What could your cash flow be, after considering your financial results, both upfront and on a monthly basis? How will you determine the rents you charge? Are you sure you haven’t finished paying this investment? What rate of return are you looking for and how will you get there? How realistic are your goals?

2. Required upgrades: In what condition? Will you need to make certain repairs, upgrades, etc. in the beginning? If you think you will need to upgrade, soon, what will your strategy and focus be, and will you be disciplined enough to – create a realistic, workable timeline? Remember to factor in all costs in these areas to determine your total purchase cost!

3. Possible upgrades: Fully consider and budget for any future upgrades you’ll need to imagine! Once you determine this and adjust your projections accordingly, you begin to better understand the correlation between potential rewards and potential risks!

4. Cosmetic and structural: There are 2 basic forms of upgrades, cosmetic and structural. Obviously, the latter cannot be postponed, while you could sometimes postpone the former. However, if it makes sense to proceed immediately with a cosmetic change, it is important to weigh whether it can make the property more desirable, more sustainable and potentially able to generate enough additional income to make this a smart approach. Before buying, it is important to have a qualified home inspector or engineer to comprehensively examine the entire structure, in terms of its overall quality and expectations!

5. Rental income: Examine, on the downside, what the property (unit by unit) could bring, in terms of rental income. Make your own projections, based on only about 75 – 80% of these numbers, to make sure you can handle the cash flow!

Investigate a potential investment property, using a risk/reward approach! Do not do it emotionally, but do it in a logical, analytical way!

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