A common saying in real estate is that money is made when you buy, not when you sell. It is easier to get a bargain when purchasing real estate than to sell in a real estate boom (which you cannot control). To ensure a long term profit, investors need to do their homework. This can include things like market research and getting a good pre purchase inspection.
The first thing to analyze is the location. Estimate the rent and expenses on properties for sale. Are they cash flow positive? Due to a real estate boom, many US cities are not profitable for real estate investors. Since the rent will not cover expenses, they’ll be money sinks for many years. The properties can still appreciate, but they do not make good first properties for beginners. If the only locations that work are several hours away, highly consider using a property management company.
When purchasing a house, remember that it is an investment. Try not to pay too much attention to cosmetic things like a nice yard or granite countertops. All else being equal, the value of an investment property is based on the amount of cash it generates. Pay careful attention to the capitalization rate, which is net operating income divided by market price. This metric is the gold standard for professional investors. Just be sure to buy in a decent area.
Having a good real estate agent is key. He or she will ideally know the local market well and be able to ascertain if the asking price is too high or low. There are many factors to consider that can increase or decrease your bargaining power.
Do not get too emotionally attached to a single property. This can lead to you overpaying, especially if there is an auction process. Go out several times looking at properties with your agent. Keep track of what properties you want to buy.
When looking at houses, think of the possible improvements you can make that can improve the value of the house. A very common opportunity is raising the rent. Many landlords charge below market rents to long term tenants they like.
Property inspections are a very important part of the acquisition process. These take place after you make a formal offer and put down a deposit. Many properties have a lot of deferred maintenance that will be expensive to fix. You can negotiate for a lower price to reflect this. Ideally, house inspections will also uncover “deal breakers” – such as very expensive problems such as an issue with the foundation.