Even if there wasn’t a global pandemic happening right now, investing in real estate can feel overwhelming, and maybe a bit boring. I mean, the whole point of a solid real estate investment is the guarantee of long-term stable returns. Which just sounds boring.
The whole process can also feel pretty convoluted and jargon-y (real word, I think?). In fact, most of the first time investors I work with have already talked to several real estate agents, but still don’t have a clear idea of what type of investment they are looking for, or what “factors” they should be prioritizing, or even what questions they should be asking.
Typically, like many people, they have turned to real estate to diversify their portfolio, and are simply looking for a “good value.” They may have even heard some terms like “Cap Rate” or “Gross Rent Multiplier” along the way, but don’t have a target they are trying to reach. Often I hear the phrase “I just want a good deal.” Yes. Obviously. I want that for you too : )
However, determining what is a good deal, and what makes sense for you as an investor is where things start to fall apart.
Any real estate agent worth their license can tell you whether a single-family home or condo is being offered at a reasonable price when compared to other similar properties. Using powerful MLS tools available to us as Realtors, any of us can run you cost comparisons to help you know if the list price is reasonable in light of the current market and overall trends. We are even savvy enough that we can do that for multi-family and commercial properties as well. And, with a click of a button, we can auto produce a graph showing trends! Aren’t we fancy??
Unfortunately, when it comes to real estate investment, the cost of the property is just one small piece. The key issue really comes down to what are you looking for? What are your goals? What is more important to you: higher immediate cash flow, or long-term capital accumulation? What is your risk tolerance? Are you looking for more tax deductions? What is the opportunity cost of the investment? The Net Operating Income on that 16-unit property may be amazing compared to that 5 unit property you were looking at, but what if the 5 unit is in a neighborhood with skyrocketing appreciation?
Like I said: it can be overwhelming. This is why working with someone knowledgeable and whom you trust is absolutely critical.
Your real estate agent should be able to walk you through the different financial scenarios, calculate your cash flow, help you understand the impact of leverage on your cash flow, and most importantly, give you the guidance and information you need to make the right decision for you.
If you are ready to invest now, or simply want to talk through what you should be thinking about, shoot me an email, I would love the opportunity to help.