There is seemingly an infinite number of things to consider when acquiring an investment property. Hopefully, this list will insulate you from potential problems while making your
buying experience more profitable.

Location (My rising tide theory): Everyone has read that the three most important aspects of real estate are location, location and location. Great advice, but what does it mean? Well, it does not mean to avoid investing in all properties that are in a "bad" location. If this were true there would be no slumlords. Being a slumlord may not be your way of doing business, but many a shrewd investor has made his fortune "on the wrong side of the tracks." It does mean that buying in a "good" location will help to offset other mistakes ... like paying too much for the property.

However, one of my favorite expressions is, "All boats rise on an incoming tide." To me this means that if my clients purchase property in areas likely to appreciate, locations which have strong up-side potential, they will be more likely to prosper.

Condition (Cute sells!): The property you buy need not be in great condition but the property you sell should be. One proven way to buy low and sell high is to do the work that others are unwilling to do. It's the whole theory behind the "fixer". The point here, however, is just not to improve a property's condition ... improve its cute-factor. Many a cheap present has been gratefully accepted within an alluring box wrapped in fine paper with a beautiful bow.

Maintenance (It's like a teenager's appetite): Maintenance is the cost to maintain a property, not to improve it, just to keep it in a static condition. There is little that can chew up cash flow as quickly as the constant drain from maintenance. Look for property that will not need continual attention.

Jobs (Even good tenants need a job to pay the rent.): Invest only in an area with a broad economic base.

Motivation: If possible, learn why the seller is selling the property. Upon occasion, this is a real education. The best way, when the occasion arises, is to ask the seller.

Comparable Sales (Know your competition.): A basic part of your research is to have an understanding of just what other people have paid for similar properties in the area. Real estate is a neighborhood business. Know the hood before you are part of it. This goes for rents, too. Learn what tenants are paying in the area.

Professionals (The cheapest education is what you pay for in advance.): Have an uninterested, third party, professional inspect the physical aspects of the property - no brothers-in-law, not yours and not your agents. Consult a real estate attorney, a real estate oriented CPA and a Qualified Intermediary, if applicable. (Note the stress on real estate orientation for the professionals you consult. All attorneys and all CPAs do not know real estate and their use can definitely be counter productive.) Actually, this is good advice for Realtors, too. When buying or selling investment property use the services of a Realtor who spends every waking hour thinking about real estate investments. Would you have your favorite auto mechanic pull your tooth?

Financing (The devil is in the details.): There is more to a loan than its interest rate, term and points. When comparing potential loans compare all of its aspects. This is not an easy chore and the lender's jargon doesn't simplify it. Find a lender you can trust, your broker should be able to help you, and let him perform his magic. Read the documents.

Reserves (Remember the old westerns with the cavalry riding over the hill to save the embattled troops?): Plan on having adequate cash reserves. The amount will vary from investor to investor because of banking connections, available equities, sleeping habits, etc. Just make sure you are comfortable that when (not if) an emergency arises, you will be able to handle it without jeopardizing your portfolio.

Leverage (It's hard to reach the top of a mountain by digging a hole.): As a general rule, only buy investments that have a cap rate higher than the mortgage interest rate. Otherwise, your leverage will be negative. With positive leverage, an investor makes money on each dollar he borrows. With negative leverage, an investor loses cash flow to the lender on each dollar he borrows.

Loan term (A short fuse is the mother of fancy footwork.): There is no downside to a long term loan. The longer the term of your loan, the more insulated you are from economic conditions over which you have no control. The option of paying the loan down prior to its maturity can easily be negotiated at acquisition. Don't get intimidated into a time bomb disguised as a pot of gold. Only accept loans with terms longer than economic cycles.

Financial Analysis (Analysis is an art, not a science.): The software necessary to complete a thorough analysis is expensive but available. Insist that your broker provide you with the following as a minimum: Annual Property Operating Data, Property Acquisition Report, Property Sale Report, Pro-forma Income Statement, Analysis Assumptions Report, Real Estate Investment Analysis, and a Sensitivity Analysis. Also, you need to be involved in the analysis process so that your assumptions and beliefs can be reflected in the results. "What if scenarios must be available to you. Don't go into contract without it!

Disclosed Data (Trust is a precious commodity. Make people earn it.): Do not assume that the sellers or their broker are providing you with accurate numbers. Require two years of operating statements, preferably those that the seller presented to the IRS.

Contracts (Never buy a horse without checking its teeth.): In real estate there is no such thing as a verbal contract. Get it in writing. If it is not in writing, pass. Review each service contract, each lease, and all other pertinent documents. Only accept a contract that provides for you to receive, review, and approve all appropriate documents prior to your deposit "becoming hard".

Estopple Certificates (You're not only buying property, you're also buying tenants.): Only accept a contract that stipulates that you will receive an estopple certificate from each tenant prior to closing. This is a statement from the tenant acknowledging the accuracy of the provisions in his lease.

Renting During Escrow Period (Remember the lesson of the Trojan Horse.): Only accept a purchase contract that contains a provision that the seller must get your written approval prior to signing a new lease.

Specialize: Life is complicated enough, why try to know everything? Each type of real estate investment, i.e. apartments, industrial, retail, office, land, hospitality, retirement homes, has its own idiosyncrasies. It is hard enough to become an expert in one sector of the market. The closer you stay to what you know, the better results you can anticipate.

Remember your purpose: You are purchasing investment property to accumulate wealth. Keep this in mind when you make your investment decisions. Keep this in mind when you screen tenants. Keep this in mind when you hire your advisors. - MH