Real Estate Professional Paul Kaulesar Highlights 5 Ways to Tell if a Property is a Smart Investment
Investing in residential or commercial real estate can be lucrative provided, of course, you make the right decisions and avoid the wrong ones. To help you go in the earlier direction, there are five ways to determine if a property is a smart investment, according to real estate professional Paul Kaulesar.
Pay attention to the location
An old saying in the real estate world is that the three most important aspects of a property are location, location, and location – and that wisdom certainly applies to potential investment properties.
“The location of a property is critical to the overall picture as it affects a number of factors,” comments Paul Kaulesar, who is currently one of the top producers of On Call Realty in Palm Beach, Florida. “Just some of the aspects that are directly influenced by the location of a property are housing costs, rental prices, property taxes and desirability compared to other properties. For example, if two houses are comparable in many ways, including selling price, then the one closer to schools, parks, or other things that renters desire will be more profitable and the occupancy will be higher too. “
Analyze the cap rate
The capitalization rate (short for capitalization rate) is determined by dividing the annual net income of a property (gross annual income minus annual net costs) by its purchase price and then multiplied by 100. For example, if the projected annual net income of a property is $ 24,000 If the purchase price is $ 150,000, the upper limit is 16% (24,000 / 150,000 x 100).
“There are several ways that investors can use the cap rate,” commented Paul Kaulesar. “The first is that it helps determine whether the asking price of a potential property is likely to generate positive cash flow at a desirable level. The second is that it can help investors determine the optimal selling price for properties in their portfolio by analyzing the cap rate of comparable properties recently sold. “
Take a long term view
Of course, you focus on properties that generate positive cash flow from rental income. However, it is also important to take a long-term perspective and realistically assess the potential for value growth.
“Even if investors are currently planning to sell an investment property in a few years’ time, the appreciation potential will directly affect the selling price at that point and be an important consideration for buyers,” commented Paul Kaulesar. “Ultimately, however, this differs from investor to investor. Some will comfortably invest in a property as long as they believe the value of the property will not go down in the short or medium term, while others are willing to earn lower rental income in the short term if they believe the value of the property will increase significantly over time . “
Get behind the numbers
As consumers, we sometimes come across a deal that “seems too good to be true” – which causes us to pause instead of pulling out our wallet. For example, in a store, we may come across a pair of shoes that were supposed to be selling for $ 100 but are on sale for $ 50. Is this an example of an amazing deal? Or is there something about the pair of shoes that the seller does not reveal?
In the same light, when you come across investment property, go behind the numbers to see why. Is it because the property is falling apart and taking tens of thousands or hundreds of thousands of dollars in repairs and renovations? Or is it because the seller is motivated?
“There are a few ways investors can get behind the numbers, including personally inspecting a property,” commented Paul Kaulesar. “It is also highly advisable to work with an experienced local real estate professional who can help with this analysis and bring to light things that investors may need to know before they close a deal – not after.”
Have realistic expectations
Many investors have made significant profits, especially in recent years with historically low interest rates coupled with increasing demand in many parts of the country – including Palm Beach, where Paul Kaulesar lives and works. And there is no reason why you cannot be one of those profitable investors. However, it is important that you keep your expectations realistic.
“Real estate TV shows have created a lot of hype about real estate investments, especially in the residential sector,” commented Paul Kaulesar. “However, investors should ignore the hype and continue to focus on the basics like location, cash flow, cap rate and projected appreciation. It must be reiterated that working with an experienced local real estate professional is essential here. Otherwise, investors are likely to overlook important considerations or make assumptions – and instead of being profitable and rewarding, their experience is likely to be costly and unfortunate. ”
This article does not necessarily reflect the opinion of the editors or management of EconoTimes