Real Estate Investing 101: Property Analytics & Budgeting

Real estate investors performing property analytics and renovation budget

If you are investing in real estate, you have a lot of important decisions to make. First, will you be holding onto the property as a rental unit and gaining long-term appreciation (“buy and hold” investment)? Or, are you planning to renovate the house and resell it for a profit (“fix and flip” investment)?

Figuring out how you intend to use the investment property should always be your first step. It should be a vital part of your overall business plan. Knowing what you are going to do with the investment (and how you will be making money from it) is necessary to property analytics and project-specific budgeting. These are two of the other most important steps you need to take as a real estate investor before purchasing any properties.

The Value of Property Analytics

As you search for houses to buy as investment properties, you should find yourself analyzing as much data as possible. You have to crunch the numbers to determine if the investment is worthwhile, and you have to do your best to remove all emotions from the transaction.

Let’s say you are planning to renovate flip the house. You have to consider the purchase price and project the renovation costs. How much money is coming out of your pocket to get this house ready to resell? Plan for the worst and expect everything to end up costing more by the time everything is said and done.

Timing is Everything

Another thing to consider is the timing. Project how long it will take to finish the renovation project. It’s always a smart idea to budget in some extra time for construction delays and complications that will inevitably come up in any major home renovation. If your best-case scenario is six months, you may want to budget for 9-12 months just to be safe. Any home ownership costs associated with this time will also need to be added into your out-of-pocket budget. We’re talking about insurance, property taxes, utilities, etc.

Lastly, you need to project the resale price of the property. Again, be conservative here. Figure out your low-end resale value and compare that to the high end of your total expenses for purchase, renovation and ownership. Determine your potential profit and decide if that investment will be worth your time and money. You should already have a target return on investment (ROI) in mind. If the projections don’t meet or exceed that profit goal, then don’t buy the property!

Project-Specific Budgeting

Your property analytics process should help you in planning out your project-specific budget. You will likely already have a general budget mapped out as part of your business plan. You’ll know how much you can spend and what kind of profit you are hoping to make. Then, you will utilize your property analytics for each house to create a thorough budget for each specific property. This is a step you want to take before you commit to purchasing any houses.

You may start with a general budget outline and then fill in the details more as you begin the project. No two houses are the same and no two house flips are the same. Each project needs its own specific budget and plan. From the purchase to the renovation to the sale, you should have everything laid out clearly to minimize questions along the way.

As we always say, it’s wise to be conservative in your budget. Expect the renovation process to take longer than you want, while also costing more than you hope to pay. Building in this “wiggle room” will help you prevent investment disasters when complications inevitably arise throughout the project. Smart budgeting protects you from the unexpected and ensures you make a worthwhile profit in the end.

For help with your property analytics and all aspects of real estate investing, join the PropertyLark home buying network. We have all the best resources available to your exclusive members. Learn more about us and apply to see if you qualify by filling out the contact form and brief buyer questionnaire to the right.