Investing in property? You need to have real, accurate valuations of your investments so that you can make the most profitable decisions. Making those assessments can be difficult on your own, especially if you are inexperienced in real estate.
If you are looking to get a proper, accurate assessment of your real estate investments, here are a few helpful tips.
Emphasize Risk and Liquidity
Typically, real estate investors look more toward capturing actual loan cost than the risk premiums and liquidity in a property. Knowing what the potential risk on a property is should take precedence, as should the ability to liquidate the property if necessary.
In real estate investing, flexibility is an overlooked trait. By knowing the risks involved and the potential for liquidity, it gives investors options.
Don’t Rely on Cap Rate
Cap rates are fine for giving you a snapshot of what the current cash flow is versus the ask or sale price. But investors need to look past the cap rate to gather more information. Look at population inflows, job creation, and the demographics of the area to see what the potential is for growth.
Moreover, look at how improvements can accelerate that potential rent growth as well as the underlying value of that asset.
Weigh Historical Sales
Generally speaking, investors and lenders tend to look at replacement costs and comparable sales when looking at investment properties. But with a decline in income, investors should be placing more weight on the historic sales of properties of a similar nature as well as the cost to rebuild.
Consider Cash Flow and Expenses
Far too many newbies to real estate investments underestimate the expenses involved. Yes, there is the cost of the property, but there is so much more. Consider repairs, maintenance, vacancy, property management, and more that can impact the cash flow number.
Moreover, expect expenses to rise each year. This will give you a much better idea of what the true break-even point is for the investment.