Successful Real Estate Investing I – Do Your Research

Written by Alan Findlay on . Posted in Investor Insight

Any successful real estate investor will tell you that the most important work is done BEFORE the investment is made. Saying NO to an investment is one thing that separates successful investors from failures. One easy way to do this is to simplify the process down to a checklist of investment boxes to be ticked and if the deal stacks up, all the boxes will be ticked. Here is an example checklist that can be used when looking at a new deal.

1. LOCATION

Is the investment in a location where there is constant rental demand? Buffalo, for example, has approximately 30% owner occupiers, making the majority of the population tenants. This ratio ensures constant demand for your property, although it pays to look for areas with a mix of owners, who look after their homes, ensuring kerb appeal. Other location related factors like the local economy, demographics, new transport links, local house price and rental trends should be taken into account too. Finally here, look at the neighbouring houses and their condition – getting good tenants will be affected by the general feel of the street. If you cannot physically see the street, look at Google Streeview.

2. MANAGEMENT

Do you have a reputable letting and management team in place? Bad management, especially efficient rent collection, tenant vetting and speedy repairs can make all the difference and can save a lot more than the fee in the long run. Make sure the team you have in place are easily contactable, well established locally, and a member of the local letting agent professional body if there is one. Ask for references from existing clients, and check out internet forums for any negative posts on the company.

3. CONDITION

Letting a property in good condition and keeping it well maintained at all times will attract a much better quality of tenant, and will always pay for itself in the long run. Make sure to make speedy repairs if there are any issues coming up. You will also get a good reputation as a landlord which helps, especially if you build a larger portfolio.

4. CASHFLOW

Contrary to conventional ‘wisdom’ in recent years, there’s little point in buying a real estate investment that doesn’t provide long term positive cash flow. This means it should be providing an income every month, on top of the added potential ‘bonus’ of capital growth.

5. GEARING
If you have chosen an investment wisely with a strong steady cash flow, then gearing can be your friend. Gearing is normally in the form of a bank loan or vendor finance. Check the worked examples section to see how gearing can vastly improve your Return on Investment (ROI) by lowering the amount you invest but retaining a proportionately higher amount of the income.

<< Back to US Property Investor Insight  June 2010

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