Here are six insights that will help you make good investment decisions.
When it comes to investment properties, it’s crucial to take a holistic and detailed approach to analysis. With 23 years of experience in real estate and a banking background, I’ve developed a sophisticated yet practical method for evaluating investment properties, whether they’re residential or commercial. Today, I’ll share some key insights to help you make informed investment decisions:
1. Beyond monthly rent. It’s a common mistake to focus solely on the dollar return from monthly rent. Remember that owning a property comes with ongoing maintenance costs. You’ll need to budget for repairs, replacements (like heating, cooling systems, or roofs), and dealing with tenant turnover. A comprehensive analysis should account for these factors to provide a more accurate picture of your return on investment.
2. Opportunity cost. Consider the opportunity cost of the money you invest in a property. If you’re putting down a significant down payment, think about whether that money could be working for you elsewhere. There are various ways to earn returns on your investment, such as high-yield savings accounts or tax-advantaged investments. Factor this opportunity cost into your investment decision.
3. Diverse returns. Investment properties offer multiple avenues for returns. These include:
- Appreciation: Property value appreciation varies by location, so don’t rely solely on it for your returns.
- Cash Flow: Evaluate the cash return from your property’s rental income.
- Mortgage Paydown: Consider how the property’s tenants are helping you build equity through rent payments.
- Tax Benefits: Explore the tax deductions and benefits associated with property ownership.
- Bonus Depreciation: Take advantage of tax benefits like bonus depreciation and cost segregation, which can enhance your returns.
4. Market-specific analysis. Keep in mind that market conditions greatly impact investment properties. While some areas experience high appreciation rates, others may have slower growth. Tailor your investment strategy to the specific market you’re targeting.
5. Sales considerations. If you plan to sell an investment property, the cash return it generates will influence its market value. Don’t rely solely on the market value of nearby properties; consider how your property’s income potential affects its selling price. In some cases, an income property’s value may be lower than that of a property intended for personal use.
6. Commercial properties. These principles apply to commercial properties as well. Commercial investments demand careful analysis of rental income, expenses, market dynamics, and tax considerations.
To make the most of your investment, adopt a comprehensive approach that considers all aspects, including expenses, opportunity costs, and various sources of returns. Don’t hesitate to call or email if you have questions or need guidance. We’re here to help you understand the full impact of your investment, providing you with a well-rounded perspective, even if it’s not always what you want to hear. Your financial success in real estate is our priority.
