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Learning The Simple Skill Of Real Estate Investing Analysis

Aug 17, 2007
Real estate investment is the most rewarding investment if handled properly. Day by day the demand for property is increasing and so are the prices of property, as well as rent. However, a person needs to have common sense and complete knowledge about real estate investment before he plunges in. The would be investor should aim at gaining a complete understanding of residential real estate investing analysis and also a formula that would help in determining the price to be quoted, while purchasing a property.

Understanding about real estate investment analysis is not very difficult. The most important point that the investor should keep in mind is that the analysis procedure will vary depending on the type of property. Let us concentrate exclusively on one property type, residential single and duplex family properties that are purchased for rehabilitating and wholesale purposes.

The very first step of real estate investment analysis is to ascertain the fair market value of the property, once all the repairs and other miscellaneous work is over. To do it more accurately, the investor can ask an established realtor to run a comparable sales report for him. Before taking in the report for a final decision, ensure that the properties with which your property is compared are truly comparable on all accounts. The properties should also be in the same neighborhood, with almost the same type of construction and construction period.

The next step in investment analysis is to determine the complete cost of all the needed repairs; to make the property fit enough to be brought into retail condition. The investor should be aware of what is going to be the total repair cost, including the cost of materials, labor and other holding costs. Once both, the after repair market value and the repair cost is determined, the next step is to subtract the latter from the former. The amount after subtraction is known as the property current market value.

The best thing about the real estate investment analysis procedure is that once you are armed with the property current market value, completing other real estate investment analysis is no big deal and it can be done within no time. From the current market value of the property, you can deduct 20,000 or 30% whichever is lower and you arrive at a final offer price.

To make the above-mentioned real estate investing analysis easier, let us consider an example. Suppose the property that you are planning to invest is a single family home located in a mid-priced neighborhood. After looking at all the comparables the realtor has informed you about, you come to a conclusion that the after repair value of the property should be around $150,000. After further taking stock of the current situation the house, you estimate the repairs needed at $30,000, including the cost of materials, labor and holding costs.

Next, subtract the after repair value of the property with the repair cost, to arrive at the current market value of the house. Hence, subtract $30,000 from $150,000 and the current market value would be $120,000.
About the Author
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