The Importance of Doing Accurate Analysis Before Buying Rental Property

The Importance of Doing Accurate Analysis Before Buying Rental Property
Real estate investors often get stuck in a no-win situation by investing in property without getting
the full picture of its realistic earning potential. One of the biggest (and easily avoidable) traps
novice real estate investors fall into is failing to accurately analyze properties before they buy.
The market abounds with messages that investors can buy properties for ridiculously low prices
and reap astronomical gains, and while investment real estate can certainly produce impressive
returns, investors must buy right in order to enjoy these gains.
When buying rental property, you should certainly be aware of its appreciation potential based
on the current market velocity and its position in the property cycle. However, many real estate
investors place too much emphasis on appreciation, which leads to a high-risk “speculation”
strategy instead of a safer strategy of buying based on real estate fundamentals.
When you buy based on fundamentals, you are not reliant on home price appreciation to have a
profitable investment. So, even if your home price does not rise as expected (or in the worst
case, declines), you still have a stable cash flowing asset with high rental demand.
For this reason, you need to be aware of a property’s realistic ability to provide a stream of
income, given local market rental demand, rental rate trends, and local vacancy rates. Before
you buy, always look at the rental demand in the area and find out how long properties in the
neighborhood sit vacant on average. Consider the age and condition of the property and how
much you expect to spend on repairs on an annual basis.
Remember, you’ll need to ensure sufficient income to cover your mortgage (if you get one) as
well as your fixed expenses (such as property taxes, insurance, property management, HOA)
and finally to cover inevitable repair costs and gaps in occupancy. Factor all of this into your
decision to buy as well as your personal cash flow projections for the property.
Having an exit strategy for the property you choose to buy is also important. Buying investment
property in an area that primary homeowners want to live increases your ability to sell to a retail
buyer that wants to live in the property when you are ready to exit. This will almost always
produce a higher sales price than trying to sell to another investor.

Maverick Investor Group helps our clients analyze residential investment property. We show all
of our clients how to pinpoint local rental rates, vacancy rates, and other key indicators. Access
to this level of detailed information allows our clients to make highly informed decisions about
the properties they choose to buy.
For more information visit http://www.maverickinvestorgroup.com