Investing in real estate property comes with its own set of risks and considerations. For instance, properties may have more repair needs than are immediately obvious, or there may be questions about the strength of the local job market or whether the season will impact the area’s draw.
One of an investor’s primary concerns is figuring out what the return on their investment is likely to be. For this sort of calculation, investors need to identify the critical elements that need to be addressed in order to make an investment profitable, as well as a host of other traits that can influence sale prices, including what kinds of long-term draws exist in the neighborhood or whether the building has the right traits for its intended purpose.
To help better identify what newer investors should be aware of, members of Forbes Real Estate Council, below, discuss some of the more important elements to consider when looking at an investment property. Here’s what they said:
Members discuss a few things to look for when considering an investment property.
Photos courtesy of the individual members
1. Timing
When considering any investment opportunities, among other factors, one should consider the timing of the investment. Often, great timing can even make ugly opportunities extremely profitable. – Arian Nemati, ADEx AI
2. Necessary Repairs And Maintenance
Be realistic about the number of ongoing repairs and maintenance that will be required based on the age of the property. The older the property, the higher you should budget. – Trey Cummings, CS Equities, LLC
3. Functional Utility
Investors make money when they buy a property at the right price, not when they sell. In the central Florida industrial market, a functional utility is becoming critical. How will the property be able to compete, not only today but in the future? Clear heights of over 30 foot, large truck courts, and ample parking help “future-proof” an industrial property and allow it to compete in an emerging e-commerce economy. – David Murphy, CBRE
4. Long-Term Draws Of The Neighborhood
What are the long-term draws of the neighborhood? Are there any new, sustainable industries opening nearby? Why are people going to move and stay there for the next two decades? – Zachariah Rosenberg, TapCap
Read more in Maximizing Investment Property Returns In Hot Job Markets
5. Capitalization Rate
When considering investment property, the cap rate is the most important parameter to look at. The cap rate determines what level of returns you can get from the investment. Further analysis also reveals if you can get positive leverage by financing the deal for better cash-on-cash return. – Amit Inamdar, Own Sweet Home Realty
6. Return On Investment
The most important consideration when considering an investment property is the return of the investment. Does the property generate sufficient rental income to cover all of the carrying costs? Can it be cash flow positive? Is it a seasonal property or year-round? – Melissa Cohn, Family First Funding LLC