While investing in real estate is a complex and challenging process, it can be broken down into 3 simple steps that any real estate investor must follow.
The process of investing in real estate can be a lengthy and daunting task, especially if you’re not using the right tools to do it.
However, the entire process can be broken down into 3 simple steps to make it easier to manage and plan. In this article, I will briefly talk about the 3 steps that every real estate investor must go through in order to invest in real estate, as well as mention a tool that you can use to handle all of these steps and find the perfect investment property in the least amount of time.
Investing in Real Estate Step 1: Finding an Investment Property
When it comes to investing in real estate, it is no secret that finding an investment property is the single most challenging step of your investment.
While other steps might be more complicated or require more research and calculations, the process of finding an investment property can be very challenging due to the very high number of properties for sale that you will encounter.
With hundreds of thousands of investment properties for sale nationwide, how can an investor decide where to look and on what to base their search criteria?
Depending on your investment strategy, available budget, and other factors, you will want to first choose a market or a few markets to start your search.
Once you’ve decided on a market, you will want to search for properties that match your search criteria in this market by identifying each property’s type, price, rental income, or property characteristics.
This process can be the most time-consuming in any real estate investment, but it can also be reduced to a couple of minutes through the use of some online tools and platforms.
Related: How to Find the Best Investment Property Using a Heatmap
Using Mashvisor, for example, allows you to quickly narrow down your search with the use of search filters and to filter out any properties that don’t match your search criteria, which can turn 3 months’ worth of search into 15 minutes.
Additionally, and if you want to find properties in the least amount of time, you can use Mashvisor’s property finder tool to find the best properties in the market/s you’re interested in. Simply type in the names of up to 5 markets you’re interested in, set your available budget, desired ROI, and number of rooms in the property. The AI will then search these markets, analyze the properties and compare them, and give you a list of properties that are sorted down from the best performing based on their cash on cash return.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Investing in Real Estate Step 2: Comparing Properties
After you’ve decided on a specific market that you want to invest in, and after searching for investment properties in that market, you will have come across multiple properties that match your search criteria. So, how can you decide on the best property to invest in when you have so many options to choose from?
This is where real estate comps come into play. Real estate comps refer to comparing a number of properties in a market to help you set an average value for the listing price and the profits that can be generated from properties in that market in order to eventually identify the few ones that are most suitable for your investment.
Related: How to Easily Find Real Estate Comps
To do this, you will need to specify the property type, size, number of rooms, and price range of the properties that you want to compare. Afterward, you will need to create a spreadsheet containing all of these listings and their info, and then calculate the averages for the listing prices and the income that each property will generate.
This will give you an idea about the properties that are listed at the average market price, below it, or above it, and the same goes for the amount of income that they can generate. You can then easily remove the properties that have undesirable values, such as prices that are way above the market’s average. You can repeat this same process multiple times until you have just a couple of properties that all match your criteria and investment goals.
Investing in Real Estate Step 3: Analyzing the Properties
This is the most important step for your investment in terms of determining the amount of profits that you will make from the property.
Analyzing investment properties means that you will have to gather more data about each property and do the necessary calculations for the metrics that are used to project the return on investment that a property can generate.
In this step, the most challenging task will be to gather the needed data about each investment property you’re analyzing. This data will include the amount of rental income that the property can generate, as well as all the different costs and expenses associated with owning an investment property.
Related: The Use of Predictive Analytics in Real Estate Investing
For example, a property might have a listing price that is way below the market’s average, making it seem like a very good choice for investing. But once you gather more info about this property, you might find out that it’s in a bad condition and will require heavy renovation before it can be rented out. This cost should be included in the calculations when analyzing the property in order to decide whether it’s justifiable to invest in it or not. It might turn out, after doing all the calculations, that the renovation costs will be too high and will cause the property to lose money in the first year or two, which might not be something that you want.
The main metrics that you will want to use for analyzing investment properties in general, and rental properties in particular, are the cap rate and the cash on cash return metrics.
Investing in Real Estate Bonus Step: Using Mashvisor
In addition to providing you with the tools for searching for and finding properties with ease, Mashvisor’s platform also includes features that allow you to download property comps and neighborhood comps to easily compare a large number of properties, as well as tools that can allow you to analyze each property using an investment property calculator.
Finally, the platform will give you access to readily calculated values for all the metrics that you need for conducting an investment analysis, and you can even use the different ROI metrics when comparing properties, which combines step 2 & 3 to make it much easier and faster to find the investment property of your dreams.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.