5 Easy Mistakes to Avoid When Analysing a Deal

Posted on 09. Mar, 2012 by in News

Certainly the best strategy for dealing with mistakes is to avoid making them in the first place. Do your analysis right and you will be in total control right from the start of your investing career, but cut corners and you’ll end up paying for it in the long run. Here are some tips to help you navigate around common deal analysis mistakes.

Mistake Number 1 : Taking too long

A great deal is not going to hang around. Buying an investment property is an anxiety provoking time and you want to be certain that “it’s just right” before taking action. But spending too long analysing, deliberating and procrastinating is going to ensure you end up scraping the bottom of the barrel when it comes to finding profitable deals.  Get systems in place NOW that will allow you to run your numbers quickly and efficiently. The good news is….the more deals you analyse, the easier it will become.

Mistake Number 2: Over-Estimating Market Rents

There’s no sure fire way of finding the optimal rent for a property. But there are ways that you can find out  what similar properties are renting for in your target locations by conducting your own market rent survey. Look through online sites that offer rental listings and find similar properties to yours.  Make adjustments to the proposed rents based on what is the norm in your current market.  Also, check  CMHC (Canada Mortgage & Housing Corporation)  for up to date statistics on vacancy rates, typical rent etc. Your numbers need to be as accurate as possible.

Mistake Number 3: Relying 100% on the Sellers Numbers

The numbers on a listing sheet are very rarely accurate. How can you tell?  Maybe it’s because a lot of the utilities are rounded up, how many times have you received a bill that’s been a round number?  Not very often.  Check and double check the numbers yourself because if the sellers are unsure of the numbers,  the financials are are an estimated guess!

Mistakes Number 4:  Not factoring in a Vacancy contingency fund

Even if you are totally confident that you will have no trouble renting the unit, you should still factor in a vacancy contingency fund (5% of your gross rent) and include it as a monthly expense. Even if you don’t end up needing it, it will certainly help cushion the blow if you do.

Mistake Number 5: Not Verifying the Property Taxes

Again, back to the expenses sheet. Property taxes are, in most cases based on the previous year.  The detailed listing cut *should* have the most recent property taxes listed.  Bear this number in mind as it’s highly likely that the number you will end up working with (if you end up buying the property) will increase and may affect your projected cash flow.

Real Estate investing can be a great way to improve your financial status in the long term. In order to experience success, you need to be strategic in your approach and avoid some of the most commonly seen property analysing  mistakes.

Here’s to YOUR investing success,

Jane

 

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