5 Factors That Make A Real Estate Deal Profitable
by Barry Allen
Real estate investment according to finance gurus is a sound investment. What is important in the case of a real estate deal is whether or not the investment is profitable and what its growth prospects are. The formula for success according to leaders in real estate is just "CLEAR": 1. The 'C' stands for clash flow. Any real estate investment worth is salt should be able to generate cash flow. How much cash generates would of course vary and reflect factors like local rental trends, location, infrastructure, and how much the property costs you in terms of down payment, loan repayments, interest rates, taxes, and maintenance costs. Before you invest make a study of different properties, their costs, and rental potential. 2. The 'L' represents leverage. This is essential as the profit or loss on any property investment depends on initial investments. Study aspects of leverage this will help you maximize your property market foray. 3. The 'E' is equity and is based on aspects like discounted price; a potential fixer-upper; re-zoning potential; badly run down property; foreclosure case and so on. It is advantageous to buy into equity at less than full value. A good bet is a property where the seller agrees to a price reduction as work needs to be carried out. 4. The 'A' stands for appreciation in value. Buying a valuable property in an up-and-coming development means sure fire appreciation of investment. But this is very often a speculation or guess. Experts recommend a 10-20 year investment period rather than a quick return investment. Aim for a property that will grow at 5-7% and generate reasonable cash flow. 5. The 'R' represents risk which is a factor that can make or break your financial projections. Although many large investors do not pay heed to risk it is an important factor to be taken into consideration. Always evaluate risk in any investment and formulate an alternative " stand by" plan in case the property fails to appreciate. Think how can I recover my money, will renting solve the problem? Investing in real estate is like playing the stock market, it is a gamble. Always learn about real estate investment and study the potential before investing. Never depend on real estate investments alone any financial plan should be rounded and have concrete back up plans and systems in place.
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