If you are just getting started in the world of real estate, there are a lot of common questions that you might ask as a new investor. How does the real estate market actually work? What factors can affect prices? When is the best time to buy or sell a property? These are all important questions for anyone looking to get involved in the real estate market. Today we will go over some of these introductory questions so you can get a better idea of what factors I think about when it comes to my investing decisions.
At a basic level, movement in the real estate market works by supply and demand. Buyers and sellers determine what properties should cost based on multiple factors such as location, size, condition, amenities, etc. As demand increases or decreases, so do prices. Some people will tell you to work on the premise that you have to wait till the market drops or try to time your buys and sells based on the current market. My strategy is to get as much property as I can, whenever I can, as long as it meets my criteria. The reason for this is that I know the housing market will generally go up over time, even if it dips temporarily sometimes.
The real estate market can be affected by many factors like economic conditions, political and social trends, interest rates, and more. Changes in the economy can have a significant impact on the value of properties – for example, when interest rates are low or capital investment increases, demand may increase and prices will likely follow suit. Understanding these factors can help you make sound decisions when it comes to buying or selling a property.
Regardless of what the market is doing, I know that buying properties according to my criteria will reliably lead to successful purchases that will bring in good passive income returns for me. Here is how my criteria works:
- Calculate your cash flow
- Maintain a high standard for cash on cash return
- Know your CAP rate
The easiest way to get this information is to run the numbers with my CDS Rental Calculator app. The app is easy to use, all you have to do is enter in some basics like the purchase price, interest rate, maintenance costs, etc. and it will calculate the cash flow, cash on cash return, and CAP rate for you.
Something else I always look for, and recommend you look for, with real estate is a value add. This means that a property has something that you can update or fix so that you can increase both the resale value of the property and your rental rates. Sometimes this update will make the difference from a property that is not worth buying to one that meets your criteria. It’s up to you to find those things you can do to increase the value of a property after you buy. With practice and looking at lots of properties you will start to see these opportunities and get an idea of where you can find a good value add, such as remodeling (new flooring, fresh coat of paint, etc.)
Nothing compares to the experience you get from looking around and gaining knowledge of your local real estate market. An in-depth understanding of your area is important when making any decision related to buying or selling a property. Knowing what similar properties cost and look like in your town will give you an understanding of rent rates, expected occupancy, and how much you should expect to pay when buying or how much you will receive for your sale. Additionally, keeping up with current news and events in real estate can help you stay up to date on trends, shifts in the market, and more – all of which can influence your decisions.
Understanding the real estate market is a key part of any successful buying or selling venture. Knowing how the market works, what factors affect prices, and staying informed about local real estate trends can be extremely advantageous for anyone looking to get involved. With the right knowledge and information, you’ll be one step closer to making sound decisions when it comes to buying or selling property.