5 Questions Every Investor Must Answer
To move from a simple purchase to a successful investment, you need to look past the “curb appeal” and focus on the mechanics of the deal. Here are the five critical questions to answer before you sign.
1. What is the Exit Strategy?
Are you looking for a long-term buy-and-hold for cash flow, or a tactical flip?
- The Pro Perspective: This determines the neighborhood. Flips need high “market velocity,” while holds require low vacancy and rental growth.
2. Is the Cap Rate Realistic?
Does the Net Operating Income (NOI) justify the price?
- The Pro Perspective: Don’t get blinded by “pro-forma” numbers. Verify actual taxes, insurance, and maintenance to ensure the property actually puts money in your pocket.
3. What is my “Risk Runway”?
If a unit sits vacant or a major repair—like a roof or French drain—arises, how long can you carry the costs?
- The Pro Perspective: Always ensure current cash flow can cover holding costs during renovations or transitions.
4. Does the Zoning Support the Vision?
Can you actually execute your plan (e.g., converting a duplex to a triplex)?
- The Pro Perspective: Municipal bylaws are the ultimate “deal-killers.” Verify usage rights with the city before the conditions are waived.
5. Who is on the Ground Team?
Who are your contractors, mortgage brokers, and property managers?
The Pro Perspective: Real estate is a team sport. Success depends on a network of specialists who can perform on a strict timeline.