You should have a process set for any type of investment you are presented with. You need to evaluate the investment, its risk, your resources and the desired outcome. There is information you need to review and many things to consider. Do your research ahead of time to prevent feeling buyer’s remorse. Here are five things to consider before investing in Inland Empire real estate.
The Emotional Tug
Buying a property has a lot of emotions swirling around in the process. Don’t let your emotional stress or excitement make decisions for you. Take the time to look at facts and understand that emotions are part of the process. An investment property is pretty big stakes for most people with hundreds of thousands of dollars on the line. Have a trusted partner or mentor serve as a sounding board when you get stressed. Someone outside of the transaction can more easily see the forest when you are looking at one tree.
Have financing options already in place before you start the investment purchase process. Many sellers ignore many offers that don’t already have financing in place. In the situations where you are able to enter escrow prior to having secured financing, you might become sorely disappointed if the deal falls through due to poor financial planning. Don’t risk a good faith deposit putting you at a loss because you couldn’t fulfill the terms of your offer. Remember that investment property purchases are often more complicated than residential purchase with more contract terms that might put you at a loss if you don’t complete financing.
Do the numbers work in your favor? If this is a fix and flip, are you able to get the investment property with enough margin to remodel it and then flip it? Is the market trending up or down in the area? If it is flat or trending slightly lower, your profits are at risk if remodeling has any delays or the property doesn’t sell immediately. If you plan on renting the property out, you still want to look for equity appreciation trends. This is important if you need to take an equity loan out for repairs or even to leverage on another investment. If you decide to sell over the next 10 years, you want to generate a profit to use in another investment, not break even or lose money.
Consider the neighborhood data. Look at the quality of local schools and local parks. This makes the neighbor attractive to families seeking to move in. Check with city council and local business organizations to see if there are improvements, area revitalizations and new developments in the works. These are good signs of asset appreciation for you. Don’t just look at a Zillow trend. Take the time to speak with experts and analyze the data.
Cost of Running a Property
Run the numbers. You need to afford the property even if it is vacant for a period of time. Don’t just consider the mortgage. Consider maintenance and other capital expenditures such as new HVAC units or roofs. Consider what happens if a tenant destroys the property and you need to remodel it before you put a new one in. Your net cash flow is the money after the mortgage, utilities, maintenance, and capital expenses.