When values are rising and the economy is on an upswing, developing real estate is a worthwhile investment. However, not every investment is a sound one, and buyers have to learn how to distinguish a good buy from a bad idea. Below are several ways to determine whether an investment opportunity is a winning proposition.
Adding it Up
Depending on the nature of the property, buyers should do the math before signing. The most important numbers include those listed below.
Price: Is the listing’s price in line with sale prices of comparable properties in the same area?
Equity: There should be sufficient equity to give the investor a good exit strategy and a reasonable profit.
LTV or loan-to-value: A good LTV ensures that the buyer doesn’t borrow more than the property is worth. It’s important to consider the cost of acquisition and repairs when determining the LTV.
ROI or return on investment: If the buyer and the New York City real estate developer can’t profit from an investment, it isn’t a good idea.
A Poor Location
It’s insufficient to ensure that a potential investment property is in a neighborhood that’s currently good; the area’s future value must also be considered when contemplating an investment. Are any nearby properties dilapidated and in need of repairs? If it’s a rental property, are there enough amenities to attract potential renters? Even if a property looks good on paper, it’s important to check out the neighborhood as a whole.
Too Much Maintenance Required
Sometimes, even a seemingly good real estate investment opportunity can turn out to be a bad investment. If the property has structural or foundation issues, the cost of repairs may erode profits. For commercial rental properties, if the electricity, plumbing, and other infrastructural components need frequent repairs, the property could be more trouble than it is worth.
Other Investment Criteria
The first lien position is preferable to common or mezzanine equity. Occupied rental properties are better investments than those that are unoccupied, and a partially completed development presents a better opportunity for growth than one that’s just getting started.
The Platform’s Reputation
Finally, investors should consider the investment platform’s history. If it doesn’t have a track record, it’s a high risk and a less-worthy consideration. When judging a real estate investment’s value, it’s important to compare risk factors and perform due diligence. Working with a developer can help a buyer find the right investment vehicle. Visit M Development for more details at https://www.mdevelopmentnyc.com/.