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Step 2 is to then determine the market trend for the area for which there are two critical pieces: 1) is the average price increasing AND 2) is the volume of sales increasing. If both are moving in your favor John Ross Hoodie , then you have the comfort of knowing that the right trend is in place to keep prices moving forward. In stock market investing, there is the saying that the trend is your friend and traders frequently observe price and volume data to confirm the trend. If a hotly priced real estate market shows signs of dropping in volume, be very careful.
Step 3 is to learn about supply, especially in the preconstruction marketplace. In some areas Jessie Bates III Hoodie , there are very few projects on the books and in others, there are 15,000+ units expected to emerge within 1 zipcode, in 1 year. Same is true for investing in houses. In you are competing with a bunch of new houses that are coming on-line Billy Price Hoodie , then rapid price escalation may be limited. For most savvy investors, they like to see lots of demand with very little supply which is nothing more than common sense.
Step 4 is to make your OWN opinions of the macro conditions of the local and regional marketplace. So, for example, if you are a strong believer that real estate is overvalued in the target area Dre Kirkpatrick Hoodie , why would you ever consider investing? On the other hand, if you believe that market forces will continue to escalate in the market, then why would you not be actively looking? As an example, some people believe that the graying of America is just now starting to drive people to warm Vontaze Burfict Hoodie , more attractive climates. Even though property values are high in these areas right now, are we going to see 20+ years of additional migration to them? You have to decide for yourself because we won't know the answer for another 20 years!
Step 5 is one of the most important risk management tools available to the investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to the amount of principle Carlos Dunlap Hoodie , interest, taxes, and insurance (PITI) that you will have to pay, then you can understand the amount of cashflow that may be required to support the property. If your objective is to produce cashflow Tyler Eifert Hoodie , then you need to be cashflow positive very quickly. If your objective is capital gains and the cashflow is negative, then you now understand what you may have to support on a monthly basis if things don't work out.