Whenever you are making an investment in anything, you have to make sure you know what you are getting yourself into. When it comes to real estate, there are very specific questions you need to ask before you purchase a property.
I have lost a lot of money on properties that I didn’t vet properly before purchasing them. Now, I know better, and I want to share with you some of the ways I ensure the investment I’m making is reasonably safe.
Buying a property? Ask these questions first!
1. Are the property prices reasonable?
I’m sure you all have heard me say this before, but in real estate, you make money when you buy, not when you sell. A good rule of thumb to determine whether property prices are reasonable is that they should not be more than 2-3 times the median income.
If you are investing in vacation properties or luxury properties, this rule might not work for you. There are other formulas out there for you, but I still encourage you to use formulas.
2. What return can I make?
When you decide that you are interested in investing in a property, research how strong the rents are in the area. They should be no less than 1-1.5% of the purchase price. So, if you purchase a $100,000 house, you should be making at least $1,000 per month in rent.
This is another good way to ensure that you’re investing in a good property.
3. Can I increase the property value?
Many times, people overlook moderate to low-income neighborhoods, but they can be the best investments, especially for aggressive investors. You don’t have to fix and flip every house you purchase, but there are easy ways to increase property value and therefore get more money in rent.
You want to purchase a property that only needs cosmetic improvements. It’s important that you have a good idea of how to inspect a property, Hire a quality professional inspector and get a written report. This question, will again, save your investment.
4. What are other properties selling for?
Finally, ask the question “what are other properties in the area selling for?” Keep in mind, you’re looking for actual sales prices, not just the listing prices.
This will give you a good idea if the property price is reasonable. Keep in mind that you need to asses whether the property is on the higher end of the neighborhood or average.
I hope this has given you insight and questions you need to ask before you invest in a property. What are essential screener questions you ask before you invest in a property?
Hi Billy, in question #1 are there stats where I can find the median income of the place where I would desire to buy? Also is there an example you can give as how to determine the 2-3 times formula. I want to invest in real estate, but I’m a complete novice.