Real Estate

Identifying the Best Properties: Cash Flow, Location and Price

In the current era of high real estate inventor, an investor choosing to get into the market now should be able to choose the perfect investment property. With so few buyers and so many sellers, buyers need to understand what the perfect investment property looks like. This will vary by investment strategy, but there are general characteristics of all good investment properties.

Investment Cash Flow

In this time of depressed pricing, good investment properties should provide enough income to cash flow despite their potential for appreciation. In this market, investors should not be paying for the potential upside in a property. They should be projecting no growth or negative growth for the next two years in their rents and property values. Additionally, they should expect to have near term vacancy issues. With this in mind, properties should be able to cash flow with a slightly above average vacancy.

Don’t be caught up in past performance. Today is a new day and markets have shown very few signs of recovery. Investors should base future projections on the current market. Buyers have tremendous leverage when negotiating and this should be hammered home to reluctant sellers.

Good Real Estate Location

Now is the time to swing for the fences. Consider purchasing properties in prime locations that traditionally appreciated at above market rates. Sellers in these markets might be hesitant to sell at a steep discount, but with so few buyers in the market, make the offer. The worse that can happen to a buyer is their offer gets rejected. More likely a seller will counteroffer with something more palatable than their original offer price.

Avoid fringe locations at this time. These areas will be the last to recover and their recovery will be extremely slow. Many investors moved to these areas when they were priced out of the prime locations, so don’t expect them to be able to compete with good locations once the market rebounds.

Below Market Pricing

Accept nothing but below market pricing. With so many sellers in the market, find a seller that needs to sell today and make below market offers. The only way to get a deal is to ask for one. It only takes one yes to create a very successful investment opportunity. Know market prices and know rent expectations. Use that knowledge to get the best value for the cash available to spend.

With the real estate market down substantially from its highs of two years ago, investors have a great opportunity to get an excellent property at a low price. Take advantage of this opportunity.