Real Estate Investing: Focus on the Fundamentals

There are three main criteria that must be addressed before moving ahead with any real estate investment. The key to a successful property purchase comes first from an …

There are three main criteria that must be addressed before moving ahead with any real estate investment. The key to a successful property purchase comes first from an evaluation and understanding of the area in which you’ll potentially be pouring your capital. Today we’ll focus on the fundamentals.

What makes a good property investment? First, look at what is driving the market. I’ll give you the formula that I use to make profitable purchases. You can use these rules of thumb in any market to help you separate fact from fiction and leave emotion out of the investment.

The Top 5 factors you need to study:

Economy: Does your target area have a diverse economy or a single industry economy? The more diverse the economy, the better the buffer to weather out economic storms, especially when there are several industries that ebb and flow at different times, which creates more stability. Is there outside investment? If so, on what scale—millions or billions of dollars?

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Population: Is your target region experiencing an increase of new workers, students or families? A growing population increases the demand for rental housing and home purchases. The younger the population demographic, the better; retirees may represent a niche market to sell property to, but they are unlikely to produce a long term rental and resale base. You need to determine whether there is an overall housing demand in the area. Is it growing faster than average?

Real estate cycle: Is your area beginning to grow and flourish, or is it nearing the end of its peak? Don Campbell, an author and real estate investor, breaks down the real estate cycle into four seasons—spring, summer, fall and winter—in his book Real Estate Investing in Canada. Like any good farmer, you should plant your seeds—buy your properties—in the spring, tend to them—repair, rent and manage them—in the summer and harvest—sell them—in the fall. In the winter, take a rest as you start preparing for the next planting season by doing research into the next target area and getting ready for the next buying opportunity.

Political leadership: Is there a positive, growth oriented atmosphere in your region, one that will foster long term growth?

Transportation improvements: On a macro scale, look for areas that will benefit from a change in infrastructure or a transitional change in demographics as well as the beginning of renewal.

Keeping your investments straightforward, unemotional and grounded in reality pays. Choose a place where you can grow your money slow and steadily. When it’s time to take profits, have your exit strategy in place to ensure success.

Todd Millar is the president and owner of Glenn Simon Inc., a wealth building real estate joint venture investment company focused on the Edmonton area resale housing market. Millar invests in the Edmonton area personally and on behalf of his clients.

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