An investment decision as to whether or not you should invest in a specific income-producing property requires a survey of the market to substantiate the calculations and projections you use to measure the property’s financial performance.
Understanding as much as possible about the conditions of the real estate market surrounding the investment property you are interested in purchasing is what prudent real estate investing requires for you to structure a meaningful offer.
- Survey Comparable Sales Knowing what similar income property has recently sold for allows you to evaluate a seller’s asking price. Keep the “comps” as recent as possible and as similar to the subject property as possible; rental properties similar in usage, location, size, and condition. Real estate professionals can help, you can research the public records at local tax assessor’s office, or you can call some real estate appraisers. Don’t let comparable sales determine your final investment decision, it’s generally impossible to find exact “comps” for income-producing properties, but a thorough survey can help define your investment decision.
- Survey Rental Rates Knowing what tenants are willing to pay for space in similar rental property in the surrounding area is a good way to evaluate the income projections you make on the subject property later. Real estate professionals and appraisers can be very helpful, and you might consider calling a property management company. They have firsthand knowledge of rents and might share openly just because they want to promote their property management services.
- Survey Capitalization Rates Knowing what the going cap rates are for a market area is another way for you to evaluate the subject property’s sale value. It is slightly more difficult because capitalization rates (to be accurate) would have to be calculated on the sold property’s actual income and expenses; generally known only to the seller, buyer, any participating real estate agents, and an appraiser. In this case, work with a knowledgeable real estate agent or speak with an appraiser.
