#20 The Importance of Deal Evaluation in Real Estate Investments
Episode description
Subject: The Importance of Deal Evaluation in Real Estate Investments
In the realm of real estate investment, particularly in commercial apartment buildings, several key factors determine the viability and success of an investment. Understanding these principles is crucial to ensure that you do not miss out on lucrative deals or, worse, lose money.
The Significance of Cash Flow: Perhaps the most critical aspect to consider before investing in any property is its cash flow. A property without positive cash flow is generally not a sound investment. Positive cash flow indicates that the property is generating more income than the expenses incurred, which is a fundamental requirement for a sustainable investment. Without positive cash flow, you risk your capital on a property that may not yield the expected returns, thereby increasing the potential for financial loss. This is why I am firm on not investing in properties that do not demonstrate healthy cash flow.
Location, Location, Location: The age-old adage in real estate holds true. A good location can mean different things depending on the type of investment, but generally, it includes factors such as accessibility, neighborhood quality, local market demand, and growth potential. The right location can enhance the investment's profitability through higher demand and better appreciation prospects.
The Role of Brokers: Utilizing brokers in real estate deals is another strategy that should not be overlooked. Brokers bring expertise, market knowledge, and a network of contacts to the table. They can facilitate smoother transactions, provide valuable insights, and help navigate complex negotiations. Remember, in most cases, their services are free for the buyer, as they typically receive their commission from the seller. Brokers also add a layer of trust and professionalism to the deal, which can be crucial in closing successfully.
Number of Units – Why It Matters: The number of units in a commercial apartment building is a critical factor because it allows for scaling. Properties with more units offer the advantage of spreading the risk. If a few units are vacant, the income from the occupied units can still cover the property's expenses. Furthermore, more units mean more rental income, which can lead to a better cash flow profile. Scaling also offers operational efficiencies in maintenance and management.
In conclusion, to avoid losing deals and money, it's essential to understand and apply these principles in real estate investment. Prioritize properties with positive cash flow, consider the importance of location, leverage the expertise of brokers, and understand the benefits of properties with a higher number of units for scalability. These strategies form the foundation of successful real estate investment.
Best Regards,
Oleksiy Ihnatenkov CEO and Founder of
ICRE-Invest Capital Real Estate
located in Sweden.
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