Todd Jones

The worst thing to do when buying investment real estate is to determine the value of the property like you would a home you are buying as your primary residence. Getting "comps" for homes in the area will only hurt you as you may end up paying more for a property that will not generate enough income to support itself. You don't want to end up paying your mortgage from your personal income. A good investment property will pay for itself with money left over each month.

The value (what you should pay for it) of investment real estate must be determined based on the financial performance of the property - how much cashflow does it generate. A property is a business and must be looked at as such. There are a lot of things that go into evaluating a property; location, economic factors of the area, past performance, potential performance, etc. A great book (maybe the best I've seen) is Ken McElroy's ABCs of Real Estate Investing. He lays it out, bit by bit, in detail how to properly evaluate a property you're looking at as an investment. Ken is an investor and property manager himself and his advice and help are extremely solid.

Also, and most importantly, do not work with a realtor who works in primary residences only (helping people buy their home). They have no idea what makes a good investment property. You need to find an agent who is an investor, was an investor, or understands what makes good investment real estate. An inexperienced agent will have you buying properties without the proper evaluations, costing you tons of money.

Finally, do not get emotionally involved in the property(s) you're looking at. Yes there may be characteristics of the property that make you absolutely "fall in love" with it. The only characteristic you need to concern yourself with is CASHFLOW! Period. Look at tons (at least 100) of properties before making offers as well.

I hope this helped. Good luck. - Sat Jul 19 2008, 07:57