Investors Center
Welcome to the Investors Center
EVALUATING INVESTMENT PROPERTY 
Okay, so you found a piece of investment property, Next question, is it a good buy? While no one can predict the future, especially in real estate, there are a few ways to evaluate the preoperty to determine if it will pay off.
First, take a quantitative look at the investment property. What are your expectations of the preoperty as an investment? How do you expect it to perform? You need to define your expectations and check to be sure they're realistic.
Next, look at the property with a qualitative eye. Is this realistic? Do you have the time and commitment necessary for this project or endeavor? Is this something that you can actually do?
Finally, consider the rate of return. Any investment property is giong to require money. You know that you have to actually purchase the property, but keep in mind that the money outflow doesn't stop there. Renovations cost a lot, as well as any upkeep and maintenance. Add up the money that you'll have to put into the property and compare that to the expected profits. That gives you the rate of return.
Take time in evaluating the property and be realistic. Know your limitations as far as the time you have to invest, your ability to renovate and manage the property, and your cash flow. You will need all three of these areas to work in your favor to make an investment property profitable.
Property Appreciation
What is appreciation? Why do property values go up? Appreciation is the increase in value of a property over time due to inflation, supply and demand, capital improvements and other factors. Most real estate investors purchase income property for cash flow and capital appreciation. When weighing the benefits of purchasing a home or renting, many people opt to buy because they can increase their n
et worth via appreciation. The real estate investor should therefore have a good understanding of the factors that cause real estate to appreciate in value. Understanding why real estate goes up in value can help you make more profitable investment decisions. Properties appreciate in value for many reasons. The seasoned real estate investor will look for a combination of factors that will result in high appreciation growth rates
Property values appreciate in value over time due to inflation. Inflation is caused by an increase in the amount of money in circulation. The value of money declines when the supply of money increases and the end result is increased retail prices. The cost of the land, construction materials, labor costs, building permits and fees, etc. go up over time making it more costly to replace an existing property. These factors alone do not guarantee that an income property will increase in value. Factors such as poor upkeep, the general decline of an area, economic obsolescence, reduced demand, increased crime levels, etc. can cause properties to decline in value even when replacement costs are increasing. In summary, personal residences and income property usually appreciate in value over time due to inflation because the cost to replace them has increased.
You can increase the value of real estate by making cost-effective improvements. Improvements such as siding, a new roof, a new addition, new carpeting, landscaping, paint, etc. can increase the value of both personal residences and income property. Some improvements, dollar for dollar, will result in a greater increase in value than others. You should plan carefully and make improvements that result in the highest level of appreciation for the dollars that you spend. Keep in mind that if you make too many costly improvements, you might not recover those costs when you sell. Small improvements can sometimes deliver the greatest bang for your bucks.
Supply and demand can cause the value of real estate to go up or down. Over supply can cause real estate values to fall and undersupply can cause prices to appreciate. Demand for real estate can vary greatly in different areas of the country and in different areas of a city. The demand for real estate is affected by the availability of jobs, the level of interest rates, availability of land, proximity to shopping, schools, parks, churches, etc., infrastructure improvements, population changes, desirability of an area, crime levels, property tax rates, zoning changes, etc.
