But did you know there are reliable formulas that can help you determine whether a property is worth pursuing? It's like playing financial detective long before a penny ever slips your hand!
While the stuffy, technical term is “real estate pro forma,” these calculations and formulas are simple ways investors can estimate rental income, factor in expenses, and anticipate projected long-term gains.
And while these pro forma calculations are about as detailed as you can get, there are other general “rules of thumb” newbies investors should keep in mind when perusing properties. Here are four:
1) Location, location, location: Consider factors like desirability, proximity to amenities, and whether it aligns with your target market. A great location can be an investment game-changer, so choose wisely.
2) Cash flow is king: Take a close look at the numbers and ensure that the rental income will cover your expenses, giving you some extra padding for unexpected repairs or vacancies.
3) The appreciation factor: If cash flow is king, let's call appreciation (the long-term value of a property) “queen.” When checking out a property, look into the historical and projected appreciation rates of the zip code and neighborhood to see what it might be worth down the road.
4) The 1% rule: Experienced investors say the monthly rent should ideally be at least 1% of the purchase price. For example, if you're eyeing a property worth $200,000, aim for a monthly rent of $2,000.
Remember, these are just guidelines, so do your due diligence and consult with experts in your area. The more information you gather, the more confident you'll feel in your decision-making process.
Despite stubborn interest rates, investors who know what to look for are winning right now in Sonoma County.
Want to chat about what they're seeing? Reach out — we'd love to share our resources and connect with you!
Sources: What Is Pro Forma in Real Estate? Definition and How to Calculate | 2023 | Bungalow