The Risk/ Reward Of Buying Investment Real Estate

November 14, 2020 Stan

Like, nearly, everything else, in life, purchasing, and owning, investment real estate, should be considered, on a risk/ reward basis/ scale! While, many have earned their fortunes, or supplemented their incomes, buying these types of properties, doing so, is not true, for all! There are many possibilities, both, positive, and negative, and a wise buyer/ investor, recognizes, understands, and analyzes, as many of these, as possible, in order to make the smartest decision! With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, some of these types of considerations, variables, etc.

1. The purchase price: The process begins, with closely, examining, and considering, whether the price, you purchase the property at, will serve your objective! Do you know, the realistic range, of rents, you might be able to charge, for tenants’ leases, etc? How easily, should you, be able, to rent these, so there are fewer vacancies? What might be your cash flow, after considering your financial outputs, both up – front, as well as on a monthly basis? How will you determine the rents, you charge? Are you certain, you aren’t over – paying, for this investment? What rate – of – return, are you seeking, and how will you get there? How realistic are your objectives?

2. Upgrades needed: What condition is it in? Will you need to make certain repairs, upgrades, etc, at the onset? If you think you will need to upgrade, soon, what will be your strategy, and focus, and will you be disciplined, enough, to – create a realistic, workable, time – table? Remember to factor – in, any expenditures, in these areas, you will need, to make, in order to determine, your overall cost of purchase!

3. Potential upgrades: Fully consider, and budget, for future upgrades, which you, envision, will need, to be performed! When you determine these, and adjust, your projections, accordingly, you begin to better understand, the correlation between the potential rewards, versus the possible risks!

4. Cosmetic and structural: There are 2 basic forms of upgrades, to consider, cosmetic, and structural. Obviously, the latter, cannot be delayed, while, you sometimes, might be able to delay the former. However, whether it makes sense to proceed, immediately, with a cosmetic change, it’s important to weigh, whether doing so, might make, the property, more sought – out, viable, and potentially, able to generating, enough additional revenue, to make this a smart approach. Before purchasing, it’s important to have a qualified, Home Inspector, or Engineer, comprehensively, examine, the entire structure, in terms of its overall quality, and expectations!

5. Rental income: Examine, on the lower – end, what the property (unit – by – unit), might deliver, in terms of rental income. Make your projections, based on only about 75 – 80% of these figures, in order, to ensure, you are able to handle the cash flow!

Examine potential investment property, using the risk/ reward approach! Don’t do this emotionally, but, do so, in a logical, analytical manner!