Finding the Right Properties for Investment

Posted: 21 May 2008 | Categories: Investing

For many individuals, the idea of real estate investing may seem exciting and filled with potential, but also complicated and overwhelming. After all, unless you have a magic eight ball or a time machine that will help you predict the real estate market in the future, how can you determine which real estate listings are going to prove to be a solid investment?

The number of factors influencing your decision making process are often numerous and may leave you feeling uncomfortable with the idea of taking such a large risk. That is completely understandable. And while you can not predict or control which path the real estate market is going to take in the future, you can ensure that you make well-informed individual decisions about the properties in which you want to invest. Hopefully, this will make your real estate investment journey a little less rocky and a lot more profitable in the long run.

Identifying a good potential property for investment, whether it is a rental property or a single family foreclosure home, does take time, planning and loads of research. If you underestimate or fail to invest the appropriate time in planning out your property purchase, you could find yourself dealing with catastrophic results to your future financial well-being. Therefore, proceed with caution and do your due diligence in regards to any property you are considering. While it is all too easy to get caught up in the moment and the excitement, harness the urge to celebrate until after the deal is done and all parties have signed on the bottom line.

Creating your investment strategy

One of the first steps in identifying which real estate listings may be good investments is to ensure that they fit your investment strategy. Are you planning to flip houses quickly for a profit or do you see yourself as a landlord of rental properties which will generate a steady monthly income over the long term? The final decision regarding which real estate investing strategy you choose to follow is largely up to you and what type of lifestyle you want to maintain.

Defining your buying guidelines

The next step is to establish a specific set of buying guidelines. Having pre-defined guidelines will allow you to refine your search criteria when looking through the various real estate listings. Often, these guidelines will change slightly from time to time as your borrowing capacity changes after the successful completion of each property purchase and sale; however, in general they will provide you with a good framework from which to start your search for an investment property.
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To establish your buying guidelines, begin by asking yourself questions such as:

Are you interested in properties that are local or situated in another state?
What kind of properties would you prefer to buy — older fixer uppers, rental properties, vacation getaways, foreclosures, commercial properties, etc?
What features are important in the property?
Do you want to add value to the property? If so, how — i.e. additions, renovation, remodel?
Is the property close to public transport or major roads, good schools, lots of restaurants and shopping centers?
How much can you afford to spend on the property?
What kind of capital growth rate or cash flow potential are you realistically hoping to achieve?

Narrowing down the possibilities

With your strategy and guidelines mapped out, you now probably have a solid idea as to the type of properties that will fit your real estate investing needs. It is now time to start combing through the various real estate listings and narrowing down the possibilities. After you have found and checked out a property that works for you, sit down and run the numbers. Make sure you can afford to buy the property and that it is likely to be profitable.

As with all types of financial decisions, making a solid investment in real estate takes time and a concentrated effort to not only research the relevant information, but to understand the real estate market and what you want to accomplish in it. Master these steps and you are likely to find a suitable investment property that moves you toward your real estate investing goals.