Balancing Key Investing Factors
By: Andrew Cartwright
Tags: Real Estate Investments, Finance, Real Estate, Money, Investing

Investing is a careful balance between many factors, but 4 key components can make or break deals.

Think about a tightrope walker that confidently navigates the elements and strolls across a tiny piece or wire hundreds of feet in the air. This performer must balance fear, gravity, adrenaline and countless other factors to succeed at this dangerous task.

That’s how I view every investment that I make. I take into consideration many important factors and balance their importance in each new deal. When it comes to investing in real estate, four primary factors will dictate whether or not to invest in a property. By fully understanding these factors, you will be able to properly assess the investment opportunity and dictate your course of action.

Know Your Cash Flow

Simply put, cash flow is funds after all expenses have been covered. This includes payment taxes, mortgage properties and other various expenses. It’s important to only seek properties with a positive cash flow, as these assets provide a peace of mind. By having a positive stream of income and not having to worry about covering expenses, you can rest assured knowing that these properties will bring in passive income.

It’s important to consider that expenses can increase over time, which will directly impact cash flow. Keep an eye on your cash flow at all times and be sure to recognize the future potential of your property’s cash flow.

Know Your Risk

Owning any property carries some degree of risk. Typically, higher risk properties offer the potential for higher earnings. It’s up to you to determine how much risk you are willing to take on when considering a piece of real estate. Some important risk factors to take into account include:

Cost of expenses

Cost of maintenance

Cost of the asset

Location of property

Liquidity risk

These are just a select few of the many risk factors to assess before purchasing a property. By understanding how much risk you are willing to absorb you can properly evaluate your stance on a potential investment.

Know Your Potential for Appreciation

Over the years, your property will increase in value. This financial growth is known as appreciation and it’s vital that you consider how much your asset could increase over time prior to purchasing. With the goal of buying low and selling high, appreciation will keep your property valuable and will make for a nice payday when you decide to sell the asset.

Additionally, you will soon be able to borrow money for additional investments based off the value of your current properties. Appreciation will allow your property to become more valuable, allowing you to borrow more money for future investments.

Know Your Effort Level

The amount of effort it takes to manage a real estate asset can vary significantly from property to property. From a completely passive investment to cleaning up after messes and hassling renters for payments, it’s up to you to figure out how much effort you are willing to take on.

You can always hire someone to manage your property, but that will cut into your overall profits. Determine how much time and effort you’d like to spend with a property before you purchase it to get the most out of the asset.

These are just four of the many indicators that I use to assess properties. To learn more about investing in the real estate industry, visit my website and schedule a free consultation. I look forward to speaking with you and helping you discover a new career in real estate investing.