In our last blog, “LA Real Estate Investing: 5 Advantages Of A Real Estate Investment Analysis,” we discussed the importance of a real estate investment analysis. While we discussed its significance, we didn’t cover how to do an investment property analysis or specifics on what factors to consider. If you were left wondering how to get started and what exactly it is that you should be analyzing when conducting a real estate investment analysis, you are in luck. You will find the answers to these questions right here in today’s blog.
As discussed in our last blog, the purpose of a real estate investment analysis is to simply narrow down the most profitable investment properties available. In doing so, you must analyze data, trends, your personal financial situation, and more. That being said, here is how to get started with a real estate investment analysis and a few top factors to consider when analyzing an LA investment property:
How To Get Started With A Real Estate Property Analysis
Start With A Property Type & Budget In Mind
First things first, it is helpful to start with a fairly good idea about the property type you are looking for and what you are able to spend on an investment property. Once you have a desired property type in mind and rough budget in place, you can begin your search for your long-awaited investment property.
Choose A Location
Start by brainstorming a few sought-after locations and where you would like your investment property located. Once you have a few appealing locations in mind, you can begin searching for available investment properties in your desired areas.
Check Listings & Rental Reports
When browsing properties, you can use tools, such as a mortgage calculator to compare and contrast different properties in the locations you desire. You can also compare and contrast the rental reports in each location to get a better understanding of the potential an investment property has in each area, the most profitable property types, and more.
Analyze Cash Flow & ROI
Once you have it narrowed down to a few investment properties, complete a more in-depth investment analysis to gain a better understanding of your projected cash flow and ROI. Play with different down payments and don’t forget to account for startup, turnover, and monthly costs. This will help you gain a better idea of your monthly expenses and determine how long it will take to make a return on your investment.
Determine Your Optimal Property
Once you have narrowed it down to a few promising investment properties and have completed the financial analysis, you will be able to make an informed decision on which property is going to be the most profitable long-term.
At GSAM in El Segundo, our experienced team would be happy to help you with property acquisition and real estate property analysis. If you are a current investor, we would also be happy to sit down with you and review your current financial statements to see how you could improve your position and maximize your ROI.
A Few Factors To Consider
As a new investor, real estate financial analysis can be overwhelming. Since it is so important to analyze the right data, we have put together a checklist of things to consider so you can rest assured you are taking everything you should be into consideration in order to make the wisest investment decision. Don’t forget to analyze:
Once you are approved by the bank and have a specific property in mind, it is essential to calculate your projected cash flow. If you get a negative number or break even, it may be a good idea to walk away from the investment. When calculating cash flow don’t forget investment costs, monthly expenses, monthly income, and net operating income.
Return On Investment
As a real estate investor, the ROI is one of the most important data points to analyze. After all, you want to get the best return possible. When analyzing your return on investment, calculate your capitalization rate and cash-on-cash return to determine if the projected ROI is good enough.
The Real Estate Market
Just because the real estate market may be favorable for investors at the time of investment doesn’t mean it will continue to be. Before you commit to your investment, be sure to do your research on the real estate market and be aware of the projected trends.
Location is key! Would you want to rent in an area with poor schools and high crime rates? When choosing a location, keep in mind your targeted tenants’ needs and desires. It is also important to compare similar income properties in the area to see how well they are doing.
Are similar investment properties doing well within the area? Or are investors struggling to make ends meet? Were there surprises that came up during an appraisal and inspection that are costly? To secure a good investment, it is important to make sure you are sticking to the budget and investing in a promising property.
At GSAM in El Segundo, we offer the best investment property services and are dedicated to helping you make the most profitable financial decisions. Contact us today to get started with a free property analysis.