How to Distinguish Bad and Good Real Estate Deals

Sometimes it becomes a tiresome job for a real estate investor to differentiate between good and bad property deals. In many instances, several investors land on bad deals. But with the numbers in the pro forma and the aid of Real Estate Evaluator , the quest process is always successful. Pro forma contains many items; however, one should pay attention to the following for a good deal.


Location
Location indicates whether the deal is good or not. The property which is located away from the main business hub often has low prices. Properties in the upscale areas attract high prices. A property with lower prices than average prices in a particular area is recommended.


Price per square foot or cost per unit
When comparing properties with many units, price unit or cost per square foot is important. In some situations, a buyer can find a deal with high cost per unit. Nevertheless, when the units of a property are larger and with good footage than the average units in the area, then the price per square outshines the cost per unit.


Unit mix
Unit mix is the number of units a property possesses. An investor should decide on a property with a unit mix that resonates with the needs of that area. When the building is in a nearby learning institution, then a property with a studio or a gym is the best choice.


Vacancy rate
A buyer should inquire about the vacancy rate in the area. The higher vacancy rate can be an opportunity for the investor. It will allow the investor to buy the property at low prices. After the acquisition of the property, the investor can improve the property value and increase its price.


Property expenses 
The expenses help in determining how the property was being managed. A property in bad state incurs a huge amount of expenses. For instance, high electricity and water bills are signs that the property owner was paying for the tenants these bills. The buyer can improve the cash flow of the building by allowing the tenants to pay their bills.


Cash on cash return 
Cash on cash return is the yearly cash flow divided by the down payment of the property. It is often represented in a percentage form. Look for a property with higher cash on cash return. Yet, the low cash on cash return is not bad if you can fix the problems that make the property’s value low.


Financing terms 
A property that the buyer can obtain by financing it through seller is a better deal than the one the investor acquires by taking a loan from the bank.
By looking pro forma numbers of each property you are analyzing and inserting them in Real Estate Evaluator, followed by adjusting the numbers according to your needs can enable an investor to differentiate between good and bad deals.



For more information, you can read this How to buy your first Investment property . It will guide you what to do to get a good deal.


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