Investing in real estate is a good start, but finding good deals in real estate to make your investment profitable is even better. Nowadays any investor, beginner or advanced wants to succeed in real estate on the first try. This is rarely the case. How to find good deals in real estate? What are the action plans to achieve a good deal in real estate?
The rental value of the property
Before you start looking for real estate deals, it is important to define the profile of the target tenant who will occupy this property. The latter will change depending on the type of property. It is obvious that the rental demand for a house will differ from that of a small (T1 – T2), medium (T3 – T4) or large (T5 – T6) property.
Small areas (T1 – T2) are usually addressed to students. To make a successful rental investment in small areas, it is wise to evaluate the rental demand related to it. In the case of small areas whose target is mainly student, it will be sufficient to go to the website of the Ministry of Education to assess the student population in the city where the property is located.
Once the student population is known, its representativeness is evaluated in relation to the overall population of the city. A city like Abilly (37160) does not have the same density of students as a city like Montpellier (34000).
After this stage, it will be necessary to go down on a smaller scale, particularly in the rental sector. A city may have good overall rental potential and the sector retained by the investor is not attractive to the target. The sector will have all the more potential as the universities are close to the property.
These goals should also match your own aspirations. Thus knowing the potential of a property in acquisition project is to really evaluate its attractiveness for the target tenant through certain criteria.
Where to invest and what to do to make your investment in real estate profitable?
Demand for the city and the sector
This is one of the most important criteria to consider when you are a beginner real estate investor. It is a question of globally targeting the demand in housing of the inhabitants who populate the city according to their sector of activity. Indeed, to know for example the ratio of students to the total number of inhabitants can constitute an indicator for investing in small areas. The higher this ratio, the higher the demand for students in the sector. So an investment in studios and small apartment will be possible to achieve a good deal.
Similarly, doing good business in real estate involves knowledge and control of the environment in which the property is located. Indeed the location of the property is an important criterion because it informs not only on its value but also on its orientation. The proximity of your property with schools, shops and access to all amenities of the neighborhood give value to your home. It is better to have a good near pharmacies, security agents rather than near bars and nightclubs.
In short, it is important to mention at this stage, the blocking points and the advantageous points to a good deal in real estate. These include:
Blocking points to good deals in real estate
- No security (malfamé neighborhood)
- Delinquency (hot areas)
- General nuisance (near and far neighborhood, highway, railroad)
- Nightclubs (sulfurous reputation)
- Co-ownership (limited decision-making power)
- Construction defect (it is a handicap for resale)
- Bad payers (unscrupulous tenants)
- Penetrating humidity
- Xylophage (wood degradation)
- Industrial, wood or agricultural exploitation
Good points for good deals in real estate
- Convenience stores, Shops
- Police in the neighborhood (police station, gendarmerie)
- Fire station
- Parking, Garages
- Green spaces
The yield of the real estate
It is a forecast indicator that provides information on the profitability of the investment. On the other hand it allows to gauge the potential of the property to determine if the investment is a good or a bad deal.
Doing good business in real estate: Jobs
It is essential to invest in housing that does not require enough time and money to renovate. In addition to the physical condition of the good, one must bear in mind its cost. Indeed the property being acquired must have a price well below that of the market. This will provide a margin that will be needed for renovations.
Today, the big trend in profitable real estate concerns the purchase of old properties requiring renovation works. Buying in the new is certainly not the ideal solution. This is an unprofitable approach when you want to make good business. Real estate in the new is expensive, often overvalued and the time required to amortize the inherent costs is long.
Nevertheless we can consider making at the time of purchase some good plans by buying in the new. Indeed, since the duration of detention of the property is long and is often in decades, we can still hope that the prices are blazing a day.
To evaluate the work, it is recommended to resort to professionals of the trade to have a correct encryption. However, for small areas, it is possible to estimate by ladle the works per square meter.
Once the renovations are completed, make sure to equip your property with quality equipment. You will be able to play on the quality to fix a rent in the high range proposed on the market. Tenants who agree to pay more for quality are less likely to have outstanding payments. The quality of the property affects the price offered for renting and determines the type of tenant that may be interested in it.
Doing Good Business in Real Estate: The Bank
It is desirable to obtain real estate loans from the bank where your current account and savings account are domiciled to finance the purchase of real estate. In case of refusal, you can use other banks. The lever of credit is to use the money from the bank to carry out your real estate transactions rather than using your own money. Indeed it avoids you problems related to unforeseen events and works.
Banks generally agree to grant this loan at 80% of the monthly rent of your minimum rent. If 80% of the rent covers the credit, it is likely to achieve a positive cash flow. The cash flow calculation will be based on the remaining 20%. Taxation is not considered at this stage of the process. Since you did not even take money out of your pocket, it’s a self-financing investment. It is somewhat difficult to find properties that meet this criterion, however it is in this category that are good business in real estate.
Doing good business in real estate: Expenses
It is important to comprehensively assess the charges inherent to the property that is proposed to be acquired. As mentioned in the blocking points, co-ownership limits the decision-making power of the investor. Unplanned condo charges can disrupt forecast cashflow and turn a good deal into a financial hole. These include the works:
- Pending execution at the time of signing the act of purchase,
- Voted at the general meeting against the opinion of the investor
- Overvalued by the real estate agency responsible for the management of the condominium
The property tax, small unexpected work, insurance unpaid rent are all charges to be made to make sure to make good business in real estate.
With respect to taxation, there are:
- Land revenue (bare rental),
- BIC (industrial and commercial profits for furnished rental)
You may have recourse to a fixed or real tax system. Calculations are usually done on your income excluding charges (property taxes, condominium fees …). A real estate transaction potentially with negative cash-flow can be made up by playing on the mounting type (SARL, SAS, SCI at the IS, LMNP …). The tax rate then applies to the corporation and not the individual whose marginal tax bracket (TMI) is considered.
The lightning rod of the real estate investor
The real estate object of the proposed acquisition presents an interesting value and a return superior to 10%. It will be in this third phase to play the card of security. Real estate investing involves high amounts and the precautionary measure will protect you in case of a hard blow.
The first safe action is to buy the property below market prices. This offers the possibility of reselling it possibly after work immediately or later. The margin resulting from this purchase must cover at least the notary fees (or transfer fees) which generally amount to 8%. It is therefore recommended that the real estate investor buy at least 8% below market prices.
Finally, to effectively identify prices on the market, we can use sites like Leboncoin, Seloger, Logicimmo … that indicate the price per square meter in the area where the property is located.
The more goods you buy and resell, the more dynamic the sector. The property is therefore liquid. This is a factor that secures your investment somewhat. There are also other security factors such as:
- Employment pools
- Cultural products (museums, theaters …)
- Savings at least 1 year of rent
- Rental value of real estate
- Return on real estate
- Lightning rod of the real estate investor