How to Evaluate Potential Real Estate Investments – Southwest Michigan Property Management

Investing in real estate comes with a lot of potential to build wealth, but it also comes with a lot of risk. To increase your ROI and ensure you have a pleasant and profitable investment experience, make sure you’re prepared. Make sure you know how to evaluate potential real estate investments so you don’t find yourself making hasty or poor decisions on the types of homes you buy.

Think About Your Budget

You’ll need to decide how much you want to spend on your investment, and this will depend on your investment goals. Perhaps you’re willing to spend $160,000 on a duplex and you want to live in one unit and rent out the other. That’s going to require a different down payment and financial plan than an investment in a single-family property or a multi-unit building. Establish the total amount of money you want to invest and decide how much your down payment will be, and how much you’ll need to borrow. Then, you can evaluate your investment opportunities based on whether they will fit into your budget.

Evaluate Potential Rental Income

You’ll need to evaluate every potential investment against the amount of rent you can earn on it. Don’t accept an estimate from your real estate agent. Dig a little deeper and gather some data that you can rely on to run your numbers and establish a projected cash flow. Look at what comparable properties have rented for in the area. Many investors will check out sites like Zillow and Craigslist. Those can be helpful, but you’re only getting an idea of what properties are listed for. You can’t know what they actually rented for unless you have access to that information. Talk to a property management company in Southwest Michigan that knows the market and can help you with a comparative market analysis for potential investment properties.

Evaluate Expenses and Losses

You’ll need to plan for things like vacancy, turnover, maintenance issues, and even risks like a non-paying tenant or a natural disaster. Measure the cost of taxes, insurance, management fees, and routine and emergency maintenance expenses against your potential income to get an accurate idea of what your cash flow will look like. Your operating expenses will depend on the age and condition of your property, the neighborhood it’s in, and the amount you’re willing to spend on marketing, tenant incentives, etc.

Think Long Term and Short Term

Cash flow is pretty critical when you’re evaluating an investment opportunity, but don’t forget that with a buy and hold strategy, you’re planning to invest for many years. Take a look at property values and whether they’re on the rise in this market. You want your home to appreciate, and you also want to know you’ll be able to rely on consistent rental income. Measure short term rental income as well as long term returns to get an accurate idea of whether an investment property makes sense for you.

Please feel free to contact us at Real Property Management Southwest Michigan. We love strategizing with investors, and we’d be happy to help.