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3 Quantitative Factors To Consider Before A Buying Property

Performance Property Real Estate Question

Q: We’re buying our first investment property.  What are the most important factors you think we should consider? Dave, Bayonne, NJ


A: There are many factors, both quantitative and qualitative that you should consider before you even make an offer to buy an investment property, Dave. I’m going to give you 3 quantitative factors that you should consider before you buy investment property:

1. The 1st and most important quantitative factor is property market value. The safest way to determine property market value is to get an appraisal. The 2nd best way to determine property market value for smaller residential property is to get a comparative market analysis from a licensed realtor who is active in the area where the property is located. I would stay away from public property search portals like Trulia or Zillow because although they are convenient, the information they provide is not consistently accurate.

2. A 2nd quantitative factor is the renovation cost required to prepare the property for whatever you’ve decided you want to do with the property (i.e. rent or resell) It’s best to get at least 3 renovation estimates from local licensed contractors. Normally, depending on the area where the property is located, the estimated renovation costs will be higher if you to plan to resell the property than if you plan to rent the property.

3. A 3rd quantitative factor you should consider before buying an investment property is the estimated holding costs you’ll have to pay while you are preparing your property for whatever your exit strategy is (i.e. rent or resell). In either case you should add your estimated time to do the renovation to the average days on market for the type of property you are planning to renovate and sell to arrive at an estimated holding time
period. If you plan to plan to renovate then rent, add your estimated time to do the renovation to the average days on market for the type of property you are planning to renovate and rent to arrive at an estimated holding time period. Then take the estimated holding period and apply the daily holding cost which will include property taxes, interest, utilities as well as other costs associated with maintaining the property.

Thanks for your question, Dave. For more real estate information and tips visit my blog at geraldlucas.com.