Probably the first thing that real estate investors must learn is to determine whether or not they’re making a good deal.

For this, a simple acronym “C.L.E.A.R” can actually clear up whether or not a real estate deal will work to your advantage or not.

With that said, let’s address each of the aspects as covered by the acronym:

#1: Cash Flow

Ask yourself whether the property in question will provide an income and how well this income matches up with potential properties in the same area. It all depends on whether you need this income now or you consider future equity growth more useful. Again, there is no right or wrong answer – it all depends on what you need.

#2: Leverage

Think about it: the less cash you put down on each property, the more number of properties you can purchase. Best part: if the properties go up in value, then you stand to gain much more than your investment suggests. There’s the possibility of negative cash flow but that is usually short-term and can be handled if you have alternative income or cash reserves. A “nothing down” investment might seem to be advantageous for the high-leverage investor but it should be approached carefully.

#3: Equity

There are several ways by which one can create equity but the best of the lot is by buying into equity. Get a seller to part with his equity for less than full value. Other ways by which you can do this is by a discounted price, rezoning opportunity, foreclosure, poorly managed property among others.

#4: Appreciation

Let’s face the facts that if you buy property in the right neighborhood during the right time of a real estate cycle, you’ll end up making profits as you property value appreciates. Yet determining this time is easier said than done. No matter how confident you are, it’s always safer to buy for moderate long-term appreciation spanning 10 to 20 years.

#5: Risk

Always have a plan B just in case your assumptions don’t hold water. For example, if you’ve bought for appreciation and that did not happen, is it possible to rent the property out for positive cash flow?