Success in real estate isn’t just all about the number of deals you get and the amount of profit you receive. It’s also about recognizing whether a property is a good catch for you or not. It won’t matter if you have less deals than others. If your deals prove to be better than theirs, you can certainly surpass their profit margins even if they have more properties.
But what makes an ideal real estate deal? The key word is “ideal.”
I – Income
E – Equity build-up
A – Appreciation
L – Leverage
The income refers to either your present income or a future retirement income. In any case, you’re in it for the money, so the income should be one of the center points when looking out for a good deal. Depreciation is a tax write-off or loss on the accounts, but it is actually a tax benefit to real estate. Equity build-up is gaining equity as you pay your debt on the property. You can also opt to force equity on the property by fixing and remodeling it. Appreciation involves raising the value of real estate over time. Lastly, leverage is putting in an investment to get a worthwhile return. Leverage is basically one of the key benefits in real estate. Basically, it’s a dollar-for-dollar basis wherein when the stock market goes up, your returns will go up too.
Determine Risk and Upside Potential
With every deal comes risks and the possibility of having an upside potential. Taking risks is common in the real estate market. There are almost always risks. The less the leverage, the greater the risks. The more you owe, the bigger the risks.
Risks are something that every real estate investor has to be seriously considering about. This is because when you lose in a deal, you do not just lose your money. You also lose the amount of time you spent working hard on that deal, and you also lose your some of your credibility in the field. Your time and effort used in that deal would have been put to waste.
Determining whether the deal has an upside potential is also important. There are actually a lot of properties out there that can be developed and creatively altered to increase its attractiveness and appeal to the buyers.
Risk, upside potential, and IDEAL are basically what will guide you in recognizing a great real estate deal. These will also help in telling you which real estate deals have a big probability of flopping, and therefore give you an early sign to avoid that kind of deal.
Move Out of a Bad Deal!
There are times when we notice too late that we’ve made a bad deal. We may have neglected to check on some things that could prove to be the cause of the problems with the deal. When this happens, it is important not to drag the deal longer than necessary as it will only provide a loss for you. When you’re already in a deal before you realized that it will only cost you more than give you gains, the best move is to negotiate yourself out of that deal.
Add to the criteria (IDEAL, risk, and upside potential) the need for knowledge and research, you will be able to realize at least at an early stage that you have to move out of the deal as soon as possible. Knowledge is a known powerhouse of real estate. The more knowledge you possess, the less risks there are.