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Rental properties are a great investment idea, but it is very easy to lose a lot of money very quickly if the proper research isn't completed. In particular, there are 3 key points to keep in mind when deciding whether or not a property is a good investment. All of these points are based on the single most important principle of investing, which is that the ultimate goal is to make a profit.
Purchase Price
The first thing to consider when analyzing the value of an investment property is to carefully study the purchase price. Before entering into any serious purchase negotiations, you need to obtain price comparables. This process will let you know what similar properties have recently sold for within close proximity to the property that you are looking to purchase. The sales prices of these recent comparables should be in line with the price of the property you are considering.
Operating & Repair Costs
A common error committed by investors is to purchase an investment property that seems to be a good deal without fully considering the costs that can come up after the property is purchased. Before the purchase is finalized, you need to make sure that the property is subjected to an extensive appraisal process during which it is given a wall-to-wall, floor-to-ceiling inspection. It is during this process that you will discover any other potential expenses in the way of repairs or improvements that you will need to make. Too often, buyers don't include this information when considering the total cost of the property, and as such they often find themselves overwhelmed by repair and renovation costs even if the initial cost of the property was favorable.
Payback Period
When looking at an investment property it is crucial that you are aware of the amount of time it will take for you to earn a profit. This depends in large part on whether you are looking to use the property as a rental property or if you are looking to flip it. In both cases, you need to make sure that you have the money available to cover all expenses from the time of purchase to the time it is earning a profit. If you are looking to turn the property into a rental, you need to consider how much rental income you will be able to generate and how quickly you will be able to begin generating it. If you are looking to flip the property, you need to consider how long it will take to complete all of the necessary repairs and renovations, and how long it is going to take to complete the actual sale of the property. Regardless of what you decide to do with the property, you need to have sufficient funds to account for all expenses, such as basic maintenance and loan payments, that will be incurred during your ownership.
Conclusion
Investment properties can be a tricky matter and can quickly go bad. However, if you do all of the necessary research and are fully prepared, you can ensure yourself a smooth experience and a profitable business venture.
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SOURCE : http://goarticles.com/article/The-Art-of-Income-Property-Analysis/5479273/
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