When someone asks, “Is this property a good buy?” Or “Should I be saying goodbye and invest elsewhere?” It’s not as easy as giving a quick yes or no. Most of the time there’s not a straightforward answer because each person is starting from a different place have different long term or short term goals. So what is a great property for one isn’t necessarily the best for someone else.
The single most considered factor of any investment is Cash Flow. I am often asked “What is a good cash flow?”. My answer is always the same…Positive. How much cash-flow is needed is subjective. Maybe you’re living in the property and house hacking so you don’t have to pay rent, or it could be a multi-unit that is cash-flowing so well it will pay itself off in 15 years instead of 30. Maybe it’s earning just enough cash to cover the mortgage, insurance, taxes and maintenance and nothing more….but it’s a long hold investment strategy…and that works too.
Part of figuring out cash flow is determining the use of the property. Will it be a long term rental, such as year long leases, or is it an Airbnb or short term rental. These decisions will not only affect cash-flow but the time and energy it takes to manage it.
Which leads to another criteria….Location! If you want to manage the property yourself, something I always advise for at least a few years, you’ll need to purchase in an area close to where you live. Conversely if you want to branch out and buy out of state you will need to insure you have an incredibly trustworthy management team. The biggest risks and loses in real estate investments are vacancies. Having a management team who owns their own rentals and understands the pain of vacancy will ensure that they are quick to help you fill yours.
Ultimately, make sure the property you purchase fits your goals. Cash flow, use, and location can start the conversation, but you need to have a long term plan in place to make sure each of your decisions, meet the long term goals you have. The last thing you should do is jump into purchasing your first or next investment because your neighbor mentioned he heard of a good “deal”.
Build a team; one who will help you analyze each opportunity to determine if a property is a good buy or if you should simply say good bye to the deal. If this has sparked your interest and you want to know more, join me the second Thursday of each month at 6:30pm for our Investment Empire class where we spend an hour and a half going through the nuts and bolts of creating long-term wealth through real estate and dive deeper into this and so much more.