As one of the most versatile professional fields tied to both passive and active income, real estate has become a land of limitless opportunities. Investors who understand the market can leverage their knowledge to reach enormous sales or rental cash flows. Before getting to a point where such objectives are feasible, however, real estate practicians have to learn how to identify lucrative opportunities.
Contrary to the popular belief that everything is as simple as finding a decently priced home, remodeling it, and then renting or selling, the actual process is much harder. It is more accurate to say that identifying real estate opportunities is a series of steps, some of which have to be taken simultaneously. According to the co-founder of the Nissani Brothers Enterprises that have many holdings in commercial real estate, Hooman Nissani, there are five crucial steps.
Compare Asking Prices to Historical and Authoritative Data
Being able to quickly compare an asking price to prior selling and county values is an exceptional starting point. This step is significant for accomplishing multiple objectives that are all crucial when it comes to the investor’s ability to identify opportunities. First, it will let them know if the price that the seller is asking for is fair. Then, it will also provide them with a great frame of reference when it comes to potential room for negotiation. Finally, knowing the historical prices alone will be perfect for running a quick analysis of the expected market growth. If there seems to be a drop-in valuation over the past years, per se, a purchase may not be the most fabulous idea.
Run Preliminary Calculations
Hooman Nissani stresses the significance of a simple calculation that every real estate professional should keep in mind. If a property cannot be rented for a monthly rate of at least one percent of the purchase price, it should never be bought. Therefore, if a building is selling for $800,000 and the current monthly rental income will not exceed $8,000, there is no mathematical evidence that such a transaction will ever break equilibrium and become profitable. This step should always be completed simultaneously with the previous one as it will help the buyer identify opportunities where the odds of profitability are high.
Cross-Reference Migration Patterns
Outside of the actual prices related to real estate transactions, the investor has to consider how much demand there is in the local market. More demand will bring more lucrative earnings.
One notable way to gain some valuable preliminary information for this step is to overview the migration patterns in the area. It is accomplished by looking at the neighborhood in question, which could also include any similar areas, and then figuring out if there were times when people moved there in the past in larger than average numbers. If the investor knows to identify a repetitive chain of events that makes it reasonable to expect more buyers or renters to move to the location soon, they will find opportunities faster.
Research Prospective Construction
In case that the migration patterns do not turn out to be great, there are some other areas of research that could justify high expectations for demand. The most important one relates to current and prospective construction projects. When an investor is aware of upcoming developments, they will be able to gauge how popular the location is going to be soon. For instance, if a local sports team is building a brand-new stadium, both the demand and property values are going to rise very soon. That means that buying right now is a good idea for anyone who can pinpoint such an opportunity.
Get to Know the Neighborhood
Finally, it is practically impossible to accurately identify any good real estate opportunities without knowing the neighborhood. It is because there are not enough calculations, migrations, or construction projects that can compensate for a sub-par neighborhood. Hooman Nissani vividly describes this by explaining how no person in their right mind will pay a premium to live in a crime-infested region that is extremely dangerous. Whether there are new stadiums, malls, or infrastructure in the making becomes irrelevant once the perceived safety is compromised. So, real estate investors who want to identify opportunities should always get to know the neighborhood.
While some other factors should be considered, it is hard to depict them as individual steps that are as important as the previous five. It is because the five steps created here are an example of an excellent real estate strategy characterized by versatility and in-depth analysis. Those who may have experience on their side will be able to customize the steps further. Individuals who are just starting, however, should probably rely on this material to learn the ins and outs of identifying profitable property offers.