Real estate that is situated in a good location is typically not a secret. Boris Becker was fond of the phrase “Every minute of the day you are not practicing, somebody else is.” The same is true of real estate investing.
There are a lot of people who want to be real estate investors, and a significant number of these people do invest in real estate. They are constantly looking for places to buy, and they are also driving up the price on a lot of properties that would otherwise be a good investment.
This leaves you with fewer potential properties to choose from and more competition for the few good investment opportunities that are available. When you do see one that is within your price range and meets most of your criteria, your inclination is to jump on it.
How do you know you’ve found a good real estate deal? Here are three key indicators.
The numbers add up
You have to analyze the property’s profit potential without giving much thought to the listed asking price or current rent. It is a good idea to have a rent survey to determine the amount of rent that is appropriate for a particular property. If the list price is within striking distance of producing a Gross Rent Multiplier (GRM) that is acceptable to you, that is one indicator you should move forward.
The vacancy rate is dropping or less than 5 percent
When you have high demand and low supply, you have the essence of profit. It helps you build a stable portfolio that will continue to build long-term wealth. It improves your ability to obtain any needed financing. A desirable GRM number is less significant when the vacancy rate of the area is high. If you have a good GRM and low vacancy rate, you are moving in the right direction.
A stable or improving area
You might not be able to afford properties in prime areas, but look for some signs of improvement. That does not guarantee the growth will continue, but if your knowledge of the area indicates a strong economy and the other factors line up, you have most likely found a good deal for you.
The last four words are crucial. A good deal for you might not be right for others. Conversely, you do not have the same financial resources and objectives as other investors. Keep in mind that growing areas often experience increases in utilities and property taxes. Such increases alter your operating expenses and profit.
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