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by Chris Anderson, PhD
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o conditions of the local and regional marketplace. So, for example, if you are a strong believer that real estate is overvalued in the target area, why would you ever consider investing? On the other hand, if you believe that market forces will continue to escalate in the market, then why would you not be actively looking? As an example, some people believe that the graying of America is just now starting to drive people to warm, more attractive climates. Even though property values are high in these areas right now, are we going to see 20+ years of additional migration to them? You have to decide for yourself because we won't know the answer for another 20 years!
Step 5 is one of the most important risk management tools available to the investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to the amount of principle, interest, taxes, and insurance (PITI) that you will have to pay, then you can understand the amount of cashflow that may be required to support the property. If your objective is to produce cashflow, then you need to be cashflow positive very quickly. If your objective is capital gains and the cashflow is negative, then you now understand what you may have to support on a monthly basis if things don't work out.
Deferred maintenance then becomes our Step 6. For an existing property, how much maintenance has the previous owner neglected that you will need to catch up? Be careful here since this can be one of the major places to get nasty surprises.
And now I saved the best for last: Step 7 is t |
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