What is the Most Important Factor When Buying Investment Property?
There are many factors that you will review when considering the purchase of an investment property. Whether this is your first real estate investment or your hundredth, you have to run careful property analytics before you buy. This is how you avoid bad deals and lost profits, though we all know nothing is ever a 100% certainty in our industry!
So, what is the most important factor when buying investment property?
Key Factors to Consider
The answer to this question may vary from investor to investor. Some of the factors you will want to review include:
• Location—How desirable is the market and what is your value potential?
• Investment Strategy—Are you flipping the house or renting it out?
• Renovation Costs—How much will it cost you to renovate the property?
• Renovation Timeline—How long will it take you to renovate the property?
• Return on Investment—What is your target ROI if flipping the house?
• Cap Rate & Appreciation—What is the long-term value potential of the property if holding as a rental?
These are all important factors to review and calculate when searching for an investment property that will make you the most money. Ultimately, however, many successful investors will argue that the most important factor is the purchase price. This is often where you will make (or lose) the most money on the deal.
Why Purchase Price is So Important
If you overpay for the house, that leaves thinner margins. Purchase price is especially important to a fix and flip investor (house flipper) or a wholesaler. You want to leave as much meat on the bone as you can. You’ll have to budget your expenses carefully, covering the purchase price, renovation expenses, real estate fees (if using an agent to sell), property management fees (if using a property management company to manage a rental), closing costs, etc. If the numbers don’t add up to a worthwhile projected profit, then it probably isn’t going to be a good investment.
The real estate market is extremely competitive. Magical home buying deals where you pay pennies on the dollar have gotten harder and harder to find. You have to be realistic in your projections and budgetary expectations. Ultimately, you want to negotiate the lowest purchase price. You just have to make sure that your analytics are accurate and your calculations are correct before you commit to buying any investment property you intend to flip.
Long-Term Investment Planning
Buy and hold investors may have a bit more flexibility when it comes to budgeting a purchase price. They can make up for a higher buying price over time as rent prices rise and the home appreciates in value. Of course, rental property owners are still looking to get the best possible deals in order to achieve maximum profit in the long run! Analytics are just as vital for buy and hold investments!
Better Property Analytics
Property analytics are so important for any real estate investor. You must crunch the numbers carefully and be very realistic (maybe even a bit pessimistic) with your budget. You want to project every single expense before you buy, and the most significant expense is the purchase of the house itself. Don’t overpay if it won’t net you worthwhile profit. Be wary of any deals that seem “too good to be true,” as well. There may be a reason why the seller is discounting the price so much or why it has been sitting on the market for awhile. Look for good properties and buy them at prices that will make sense within your investment plan.
PropertyLark uses advanced analytics tools and techniques to help identify great investment properties and analyze houses. This helps the buyers in our exclusive network find the best real estate deals and make the most profit. To learn more about our process or to apply to qualify for our investment network, visit our Buyers pages.