As a real estate investor, it is critical that you thoroughly evaluate any property before purchasing it as an investment. Some key factors to consider include:

• Location –

The location primarily determines a property’s potential rental income and long-term appreciation value. Look for areas with a growing population, strong local economy, proximity to good schools, transportation hubs and low crime rates. Avoid at-risk neighborhoods or territories with declining populations.

• Property condition –

Consider if the property needs any extensive renovations or repairs. Understand the full costs of any refurbishments required to make an informed decision on investment viability. Properties in good overall condition will qualify for higher rents and appreciate better over time.

• Potential rental income –

Estimate the potential rental income for the type of property and location based on local market rates. Ensure the rental income covers all expenses including any mortgage costs before determining if the numbers work for your investment goals. Factor in room sizes, number of bedrooms/bathrooms, square footage, etc. to estimate potential rents.

• Holding costs –

Determine all costs related to holding the property as an investment like mortgage payments, property taxes, insurance, maintenance, utilities, vacancies, etc. The total holding costs deducted from the potential rental income should still result in a good profit margin for your investment objectives.

• Appreciation potential –

While cash flow is important, long-term price appreciation significantly contributes to the overall returns from a real estate investment. Analyze historical price trends for comparable properties in the surrounding locale. Look at demographic data and forecast potential price appreciation over the planned holding period.

• Financing options –

Understand your financing alternatives including down payment requirements, interest rates, fees, and loan conditions. Make sure the property qualifies for any financing you need to purchase it as an investment. Crunch the numbers with different down payment and interest rate scenarios to determine how much financing will impact your potential returns.

• Exit strategy –

Determine how long you plan to hold the investment property and your options for exiting the investment. Will you resell the property, refinance, or keep as a long-term rental? Ensure the numbers continue to work even if there are unforeseen holding periods required. An unclear exit strategy introduces too much risk.

To evaluate any property based on these factors, you can make well-informed decisions on properties that meet your financial goals. Walk away from any deal that does not stack up numbers-wise to optimize your returns with acceptable risk. With strong evaluations, you build an investment portfolio of properties that appreciate in value and generate solid cash flow for years to come.