What Do You Look for When Investing in Properties?
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What Savvy Real Estate Investors Look For When Considering Whether or Not to Purchase a Property.
Real estate investing offers several benefits that make it an attractive option for wealth-building and achieving financial stability.
Real estate properties are tangible assets that hold intrinsic value. Unlike stocks or bonds, which can fluctuate wildly based on market sentiment, real estate typically maintains a baseline value. This stability can serve as a hedge against inflation, as property values tend to rise over time, providing a reliable store of wealth.
Beyond potential appreciation in property value, investors can also use real estate to generate regular cash flow through rental income. This passive income can provide a steady stream of revenue, making real estate an appealing option for those seeking to establish long-term financial security. [1]
Adding real estate to your investment portfolio is also good for diversification.
Real estate investments even offer tax advantages, including deductions for mortgage interest, property taxes, and depreciation, which can help minimize tax liabilities and increase overall returns. [1]
That said, investing in real estate is not without its challenges. Whether you’re a seasoned investor or just dipping your toes into the market, knowing what to look for when considering properties is essential. Here are some key factors to keep in mind:
Location, Location, Location
It’s often said in real estate: “Location, location, location.“
But this is not just a catchy phrase; it highlights a fundamental truth about real estate investing. A property’s location determines its value and potential for profits. A well-located real estate property can mitigate risks and maximize returns.
When assessing an investment property’s location, you need to consider accessibility and convenience. Properties situated in areas with easy access to transportation, amenities, schools, malls, green space, scenic views, and employment centers tend to hold their value and attract tenants or buyers consistently. [2]
Proximity to major roads, public transportation hubs, and airports can also significantly enhance a property’s desirability.
Savvy investors also look into the neighborhood’s socioeconomic trends and future prospects. Investing in areas with a growing population, strong job market, low crime rate, new developments, and increasing property values can yield substantial returns over time.
Look into how an area is expected to evolve over the investment period. Today’s peaceful open land at the back of a residential building could eventually become a noisy manufacturing facility. This will diminish its value and affect your investment. [2]
A real estate property in a good neighborhood may be more expensive, but it also has a higher chance of providing long-term stability.
Market Trends and Demand
When investing in properties, analyzing market trends and demand can help determine the potential success of the investment.
Analyzing market trends involves studying interest rates, employment rates, GDP growth, and other economic factors that can significantly impact the real estate market. For instance, in a growing economy with low unemployment rates, there tends to be increased demand for housing, leading to higher property prices.
On the other hand, during economic downturns, demand for properties may decrease, causing prices to fall.
Whether buying or selling a property, a real estate market analysis should always be done. This is an analysis of current market values of properties, comparable to a property that you are looking to acquire or sell. A real estate market analysis will help you with your goal of understanding the current market and how much similar properties are worth. [3]
Investors can research demographic trends such as population growth, migration patterns, and changes in household formations to get an idea of the demand in a particular market. For example, areas experiencing a surge in population due to urbanization or job opportunities are likely to see higher demand for housing. Investors can then capitalize on these lucrative investment opportunities.
By closely monitoring market trends, investors can make informed decisions about where to allocate their capital, maximizing their chances of achieving favorable returns. It is also a good idea to stay updated on these trends even when you have made your investment so you can stay competitive and well-positioned.
Property Condition
Before purchasing a real estate property, investors need to assess its condition. A thorough examination can provide insights into potential renovation costs, maintenance requirements, and even its overall investment viability.
Look at the property’s structural integrity. Check the foundation, walls, roof, and other essential components. Signs of structural damage like cracks in the walls or foundation, uneven floors, or sagging roofs could indicate significant issues that may require costly repairs. [4]
Pay close attention to the condition of essential systems such as plumbing, electrical, heating, and cooling. Don’t forget to assess the cosmetic aspects of the real estate property like the condition of the paint, flooring, and fixtures. [4]
Properties that have been well-maintained are often more attractive to tenants and typically require fewer immediate investments in repairs and renovations. However, even properties in need of some cosmetic touch-ups can present opportunities for value-add investments if the purchase price is right and the renovations can be completed within budget.
Cash Flow and ROI
One of the most important things for investors to assess is whether or not a prospective investment property will actually make them money. Two key factors that are often at the forefront are cash flow and return on investment (ROI).
Cash flow represents the net income generated by a property after all expenses have been deducted from the rental income. Positive cash flow is crucial for sustaining and growing an investment portfolio, as it provides a steady stream of income that can be reinvested or used to cover expenses. [2]
Investors typically seek properties with strong cash flow potential, either through high rental demand in the area or by implementing strategies to increase rental income and minimize expenses. Multifamily properties like apartment communities and condominiums are known for their strong cash flow, thanks to their multiple units.
On the other hand, return on investment is a measure of the profitability of an investment relative to its cost. It takes into account both the initial investment and the income generated over time. [2]
Investors aim for a high ROI to ensure that their capital is working efficiently and generating satisfactory returns. By conducting careful financial analysis, you can increase your chances of a favorable ROI.
By focusing on properties with the potential for positive cash flow and attractive ROI, investors can build a sustainable and profitable real estate portfolio over time.
Choose Multifamily Syndication
Investing in properties requires careful consideration and analysis of various factors. Understanding what to look for and what to consider can help investors make informed decisions and make the most out of their investment.
Focusing on aspects like location, market trends, property condition, and cash flow will help you successfully add real estate to your investment portfolio. Remember to consult with professionals like real estate agents, financial advisors, and property inspectors to ensure you’re making sound investment choices.
For accredited investors, one of the best investments to consider in real estate is multifamily syndication.
Thanks to its low correlation with other assets like stocks and bonds, real estate investing is generally considered one of the safer investment strategies out there. However, real estate syndication is an even safer option.
Real estate syndication gives investors most of the benefits of owning real estate but with much fewer drawbacks. For starters, you will get to avoid all the headaches associated with being a landlord. Here’s how it works.
Real estate syndication is an investment that involves pooling together the funds of multiple investors and acquiring a single real estate property. This strategy can be done with any type of real estate, but most investors prefer multifamily syndication due to the strong and consistent cash flow associated with these larger properties. [5]
Unlike single-family properties, apartment communities have multiple units generating rental income, so it is largely unaffected by vacancies.
Multifamily properties are larger and generally more expensive than your average investment property, making them harder to access for a lone investor. They are also harder to manage because of their size and number of units. This can be especially challenging for investors who have no experience with property management.
Conveniently, multifamily syndication solves both of these problems.
Multifamily syndication makes these properties more accessible because it involves several investors. A syndicator or a sponsor puts the deal together, serving as the general partner (GP) in the deal. They will take on most of the responsibilities in the syndication from creating the business plan to executing it. [5]
The syndicator is responsible for locating the investment property, conducting due diligence, and finding investors who will provide most of the capital needed to acquire the property. Once the deal is in place, the syndicator will also handle property management, meaning investors do not have to worry about becoming landlords.
Unlike traditional real estate investments, this is a true passive investment. Investors serve as limited partners (LPS), meaning they have limited liabilities in the syndication. They provide the capital and pay certain fees to get the syndication deal going, but they have no further responsibilities beyond that. [5]
In exchange for their investment, LPs earn a share of the monthly cash flow in the form of rental income. This may be distributed on a monthly or quarterly basis, depending on the profit split.
Also depending on the deal structure, investors may get a share of the equity upon resale. However, every deal is different and investors still need to conduct their due diligence. The profit split will be detailed in the syndication agreement or the private placement memorandum (PPM).
The syndicator handles everything from start to finish, so investors can just sit back and enjoy their investment.
Multifamily syndication is beneficial for accredited investors because it does not require a significant time investment nor any experience with property management.
Remember that most syndication deals are exclusive to accredited investors. This is because no investment is without risk. In fact, multifamily syndication still requires a significant amount of capital upfront.
These deals also tend to last for several years, so investors should be comfortable with a bit of illiquidity. You will not have access to your funds for a significant period of time.
Accredited investors are allowed to invest in real estate syndications because they have the investing experience and knowledge, to properly assess these deals. They also have the net worth and income to keep themselves safe in case an investment does not work out. Regular investors may not have this kind of financial safety net.
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
For accredited investors who want to try out multifamily syndication, it is essential to find and work with a syndicator that you trust. After all, this is a passive investment and you can expect the syndicator to make all of the important decisions moving forward.
Some investors may not be comfortable with taking the backseat in their investments. However, working with a syndicator with a consistent track record for excellence can put your mind at ease.
Work with BAM Capital if you want a syndicator that has a reputation for being an industry leader.
BAM Capital’s award-winning investment strategy mitigates investor risk while creating forced appreciation. This Indianapolis-based syndicator focuses on multifamily real estate properties that have in-place cash flow and proven upside potential. They prioritize properties that are Class A, A-, and B++. [6]
As a vertically integrated company, BAM Capital can handle every step of the syndication process, from acquiring the properties to renovating and managing them. They can guide you every step of the way. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [6]
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy passive income and all the other benefits of being in multifamily syndication, schedule a call with BAM Capital and invest today. Read our investor reviews to see other accredited investors who made the wise move and decided to invest with BAM Capital have to say.
Sources:
[1]: https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp
[3]: https://www.questionpro.com/blog/real-estate-market-analysis/
[4]: https://www.forbes.com/advisor/mortgages/real-estate/what-to-look-for-when-buying-a-house/
[5]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
