When you consider hiring a real estate consultant, understand the kind of value they are providing to your investment.
When you purchase a real estate property as an investment, its value can be estimated by the expected profit on said investment. This means that estimating cash flows, considering their present values, and calculating net differences as the expected profit are all involved in analyzing potential success.
This is only the beginning when it comes to evaluating a property for investment purposes. As a potential investor, you need to understand the costs and risks associated with a property’s needs. For a comprehensive overview of a property’s worth and profit-making ability, you need to seek the advice of an Arkansas real estate consultant.
Considerations in Evaluating Real Estate Properties
When an Arkansas real estate consultant conducts an investment property analysis, they will consider multiple cost factors:
Net Operating Income (NOI)
NOI is the net of the investment’s revenues and expenses with the exception of loan costs in a particular period of time. It is the most basic measurement of an investment’s success because an investment is not earning a profit unless it has a positive NOI. However, note that NOI summarizes an investment’s performance, meaning that it needs other measurements to provide context.
Return on Investment (ROI)
Calculated as the profit on your investment divided by the value of the initial investment, ROI measures whether the profit was earned in an efficient manner. If the anticipated ROI for a particular property is low compared to the ROI of other potential investment, your Arkansas real estate consultant may advise you to invest elsewhere in order to maximize profits.
It is important to remember that a positive cash flow is just as important as a positive NOI. This is because an investment with negative cash flow needs cash from other sources to sustain it, making it a burden as long as the problem persists. One of the most convenient tools for gauging the healthiness of an investment’s cash flow is cash-on-cash return, which determines the rate at which your cash flow can capitalize on your investment.
Risk exists because the outcome of an investment is uncertain. Since real estate is one of the most risky areas to invest, you need to make sure that your potential property will have returns big enough to warrant the increased risk.
An Arkansas real estate consultant uses both fundamental and technical methods to estimate the risk and rate of return for each real estate property you are considering purchasing. Your consultant can also recommend risk-reducing measures such as appraisals, inspections, and reductions in the number of parties involved in the process.
Commercial buildings and rental properties require people to run them, which is a factor that costs time and money. Your real estate consultant will estimate the amount of management that an investment property will need based on factors such as building condition, building size, and tenant base. They can also provide cost estimates for property insurance, payroll costs, management fees, and, if required, the money you can expect to spend on a property management company.
Market forces have enormous influence over the performance of real estate properties. However, predicting the real estate market is easier said than done, making the expertise and experience of an Arkansas real estate consultant essential to successful investing.
Ferstl Valuation Services are experts in Arkansas real estate consulting, and can provide you with the vital analytical data you use when deciding to finance a property. Download references from our happy real estate clients and contact us if you have questions about the value of your property.