The city of Tampa without doubt has a lot to offer in terms of Real Estate, and individuals must become smart shoppers as Jeremy Sposato stated on his article titled “Using Your Head When Buying In Tampa Bay.” He points out an unavoidable reality for home buyers: “Using your head when buying ……. is essential.” But, when exploring this idea in depth and focusing on the purchase of investment properties, is an investor exempt from taking the time to examine deals and making a smart decision as home buyers are required to do? Absolutely Not! In fact……
An investor must diligently analyze every deal that comes his way and make informed decisions based on facts. Investing requires a different approach and perspective than someone buying a home to live in. The savvy investor must understand basic real estate concepts and be able to keep an open mind about the physical property location, financial restraints and profitability desired.
Some of the most basic concepts an investor must be familiar with are: retail price of the property versus purchase price, property condition (any cost of repairs), the potential rent based on the location and desirability, capitalization rate and ultimately what the cash flow will be at the end of each month.
It is essential to understand the correlation between retail price and purchase price when analyzing investments. The successful investor will always seek properties offering a reverse connection where the retail price is a certain percentage higher than the purchasing price. This is a deciding factor as to whether the property is worth looking into or not. This is also the fact that will determine / drive the profitability of a deal. As Robert Kyosaki says “……a good deal is determined when you buy, not when you sell.”
The potential rent value has an extraordinary influence in deciding whether a property is a good investment or not. This is also closely related to the desirability of the property location. The more desirable the location is for renters the higher the rent value will be, the faster the property can be filled with quality tenants and the higher the returns will be. These are three factors that can be looked at as a group because of the relevance among each other.
The capitalization rate, or as most investors refer to as the cap rate can provide an idea of the rate of return an investment property will produce by creating projections based on the income that the investment is expected to generate. Even though the decision to purchase a specific property should not be based solely on the cap rate, it is a good way to measure the potential rate of return, as well as whether it’s worth your time to continue looking into it.
Finally the attractiveness of the property shows up when the cash flow is revealed. This will ultimately determine whether or not the investor will make it to the closing table. In order for a real estate transaction to be a success, an investor must complete the due diligence process and examine every factor from property details and financial implications to future projections. Keep in mind that success will be as sizable as the time, energy and research that’s put into either learning about the deal or finding the right connections that can leverage your time and money. Only then, true success will prevail.
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