Investment real estate requires a business plan. To make a successful acquisition, the investor must formulate a strategy, execute on the roadmap and let fact-based data inform the decision making process. Whether you are new to real estate investing or looking to reinvest proceeds from a prior transaction to further grow your equity, keep these investment real estate best practices in mind before signing a purchase and sale agreement.
Understand the market
Every market is unique. In Boston, investors are exploring opportunities along the 495 corridor and in Western Mass. due to aggressive prices and competition for more local assets. In Hartford, Conn., the market is currently at the peak of its cycle, with valuations more impacted by cap rate compression than by actual rent growth. In New York City, properties are trading at record highs and investors are exploring opportunities in neighboring Westchester County and the lower Hudson Valley.
When seeking an investment sales broker to assist you with identifying or negotiating for the right property, look for a partner who understands and can articulate the business plan attached to the property, and who has deep local market experience working where you are looking to transact.
Project your ROI before you buy
If you purchase an investment real estate property at the peak of the market, the opportunity to add value may be limited. Similarly, if a market is flooded with inventory, it may be difficult to create the competition necessary to sell your asset for maximum value.
Part of developing an effective real estate investing strategy is understanding your goals. Are you looking to purchase an undervalued property, to reposition or make capital improvements and sell for short-term gain? Are you in it for long-term cash flow and depreciation? The answers to these questions will help to inform the properties and opportunities that may be a right fit for your needs.
You need the right broker on your side of the table
Your broker is your partner and your advocate. They can help strategize to add value, identify opportunity and quarterback a transaction. The right broker will advise you regarding the improvements that will yield the greatest returns when it comes time to sell. By establishing a long-term relationship with a broker, you can benefit from the expertise of a seasoned professional who can proactively inform you about properties that are aligned with your investing goals and provide up-to-date market insights that may inform both your short- and long-term investing strategy. For more information on how an investment sales broker can help you plan and execute for the long-term, check out our blog post.
Understand the financing climate
Over the past cycle the debt markets have changed significantly. Most recently, banks have been tightening their underwriting standards for commercial loans in response to increased scrutiny from regulators. In turn, investors are now faced with having to bring more cash to closing.
While these measures are ultimately intended to prevent another market crash, investors need to keep cash flow in mind when looking to add a real estate investment to their portfolio. For more information on the debt markets, read our recent blog post.
While a strategic real estate investing plan can generate returns, maintaining a pulse on the markets in real-time is also a key component for achieving success.
Looking for an investment sales broker to help guide you through the process of buying and selling? Download our Guide to Choosing an Investment Sales Broker today for helpful tips and “must ask” questions.