When It Comes to Real Estate Investments… What’s a good deal?
Real estate investments are a good way to build wealth and have financial freedom. A key part of successful real estate investing is finding the best real estate deals on the market. When purchasing an investment property, clever investors ensure that they are getting a great deal. However, getting a good real estate deal is usually not easy, particularly for first-time investors. So, how do you know if a real estate deal is a good one? In this article, we discuss what makes a good deal in real estate. Read on to find out.
What Is a Great Real Estate Deal? Things to Look For
1. Low listing price
An investment property’s listing price is critical when looking for a good real estate deal, depending on your financial capacity. As a real estate investor, you should never purchase what you can’t afford. An expensive real estate investment property will usually have high operating costs too. Purchasing an investment property below market value could provide you with a higher return on investment.
To know whether the purchase price of an investment property for sale is reasonable, you need to compare it with its fair market value. If the listing price is lower than the fair market value of the property, it would probably be a good real estate investment deal. Consider doing a real estate appraisal to estimate the value of the rental property for sale.
2. A profitable location
Location is one of the most important factors when it comes to investing in real estate. A rental property’s location will determine the rental income and occupancy rate. When looking for a good real estate venture, you first have to research the real estate market at both city and neighborhood levels. A great location can make up for some of the limitations of a rental property. However, there is little you can do if you invest in a poor location.
Here are some general features of a good investment location:
- Job opportunities
- Low crime rates
- High population growth
- Nearby amenities like hospitals, restaurants, etc.
- No zoning issues
- Public transportation
- Future developments
- Booming tourism industry
- Safe from natural disasters like earthquakes and floods
3. High rental income
The main purpose of purchasing an investment property is to generate income. As a real estate investor, it’s best to find an investment property with a high monthly rental income. If your monthly rental income is high enough to cover your monthly rental costs, you will be able to create positive cash flow. And as you know, cash flow is a top priority! Before making an offer on a property, research the average rental rates of comparable rental properties in the area, and estimate its rental income.
A good way to find a great real estate deal based on the rental income is to follow the 1% rule in real estate. The 1% percent rule measures the ability of the rental property to generate rental property cash flow. This rule of thumb states that the monthly rent should be equal to or higher than 1% of the total purchase price of a real estate investment property. This rule is used to determine whether or not the monthly rent from a rental property will be enough to cover its monthly mortgage payments. Worst-case scenario, you should break even on the rental property.
4. Low rental expenses
Rental expenses are also essential in finding a good real estate deal since they will also affect rental property cash flow. Before purchasing an investment property, you should find out all costs associated with purchasing and operating it. Expenses may be in the form of repair and maintenance costs, insurance, property taxes, HOA fees, and mortgage payment.
If rental expenses are too high, they will eat into your rental income and likely lead to negative cash flow. If you are wondering how to determine a good rental property, rental expenses are something that you should unquestionably take into consideration.
5. Low repair cost
While purchasing below market value rental properties has its benefits, a beginner real estate investor should be cautious about buying a fixer-upper. If a rental property needs a lot of repair work before it can be rented out, it can wash out any profit you may have made from rental income.
Therefore, when looking for a good real estate deal, you should do a home inspection to know the repairs required and how much they will cost. A rental property that is in excellent condition can be rented out right after purchasing. You don’t have to wait long before you start earning rental income.
Nevertheless, you can also buy an income property that needs repairs. Just make sure you account for those costs when determining your return on investment. This will help you understand if purchasing the property is a good deal or a bad real estate deal.
6. Real estate appreciation
Aside from the profitability of an investment property now, an investor should also consider its potential to grow in value over time. Real estate appreciation is normally realized when one is selling a property after an increase in the selling price. To get a good estimate of whether an investment property will appreciate, check local real estate market trends.
How to Find Good Real Estate Deals
Now that you have the answer to the question “what is a good real estate deal”, the next thing is to know how to find real estate deals. With many people getting into real estate investing, it’s becoming even more challenging to find a good real estate deal. As a real estate investor, what can make the difference is using the right tools to do your due diligence in real estate. If you are thinking of how to analyze real estate deals in the best way, consider working with VRM Mortgage Services.
The best way for investors to find good real estate deals in the United States housing market is by using the VRM Mortgage Services Listing Portal (listings.vrmco.com). With this tool, you can search for the best performing investment properties in your market of choice that meets your search criteria. The portal allows you to set your search criteria using filters like budget, the number of bedrooms, location, and property type.
The Bottom Line
Successful real estate investing starts with understanding how to manage a good rental property. The above features provide the solution to the question “what is a good real estate deal?” So, next time you are looking for a real estate investment property to buy, be sure to consider the above features.