Analyze the Numbers, Create a Plan, Predict the Future...
If you're like most investors, you recognize a good deal when you see one, but by reviewing a property's key financial indicators, such as NPV, IRR, ROE, ROI, etc., you'll know more than just whether or not it's a good deal - you'll know whether or not the property is a S.M.A.R.T. Investment -
- Does it make common Sense? (location, price, breakeven occupancy, and financial performance should all just make sense)
- Will it make you Money? (you should be cash flow positive after factoring in all costs, like turnover, operating expenses, etc.)
- How much will it Appreciate? (rule #1 of investing is"buy low, and sell high" - rule #2 is "don't break rule #1")
- What should you charge for Rent? (sensitivity analysis predicts vacancy factors based on price, so you don't over-or-under charge)
- How long will your cash be Tied up? (compare annual RORs and cumulative Cash Flows to decide when to divest)
If you're planning to buy a property currently for sale, knowing the answers to these questions before making an offer will save you from wasting your time, energy, and money on properties that aren't S.M.A.R.T. Investments.
If you're planning to list your property for sale, then knowing these answers in advance gives you the information you'll need to price your asset appropriately, based on accurate financial performance analyses, so that you sell quickly, for top dollar.
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