There’s a reason why a lot of the world’s richest people keep a significant portion of their investments focused on real estate. It’s relatively stable and predictable, and the returns can be very high if done right. There are a variety of different stages and sectors when it comes to real estate investment, and one of the most important decisions that you’ll need to make over and over again is whether or not to put your money into any particular property.

If you make the right calls consistently and strike the right deals, you’ll be well on your way to building your portfolio’s size and profitability. Here are a few tips on crucial elements to watch out for when making those decisions:

1. Understand Your Financial Position

The first thing to do is to thoroughly evaluate your financial position in terms of how much you have available and how much you can access via financing or other means. Having this big-picture perspective will help you ensure that you only take on investments that you can handle, and that you adhere to your overall portfolio strategy.

2. Focus on Value, Not Cost

Very often, the sticker price on a property can be a poor reflection of its true worth. Ask to be shown the actual income and expense sheets of the property. If you can’t get them, be sure that you have an accurate (as much as possible) analysis of the operating costs. Also, focus on the Net Operating Income and compare the property you’re considering with others in the neighbourhood so you can have a clear idea of whether what you’re paying is the proper amount.

3. Market Analysis

Is the economy in a recession or in a surge, and is the property one that will be easy to find buyers or renters for? That evaluation is crucial to ensure that you don’t end up with a property that you won’t be able to monetize easily while having to deal with maintenance costs. With this particular evaluation, it’s always a good idea to work with an experienced firm like Real Pro real estate, since they’ll be able to size up the market more effectively by using their professional networks.

4. Cash on Cash Return

This is a ratio that you can calculate by dividing your cash flow by the amount of money you have invested in the property. Generally, a ratio of between 15 and 20% is considered desirable by many investors, but it’s important to note that your ratio will always be higher, the more leveraged you are. As such, it’s important to also focus on the projected returns from the property.

5. Debt Service Coverage Ratio

If you’re purchasing a property through a mortgage, you should be certain that the projected income will cover the monthly payments and still leave you with some extra profit. Be sure to factor in the principal and interest of every loan that is pending on the property so you’ll have a more accurate figure.

In all, even though real estate investment is a very profitable area to put your money in, your success or otherwise will be dependent on how carefully you evaluate opportunities before committing to them. Follow the tips above and seek professional advice where necessary, and you’ll be well on your way to making the profits you want.