A client called me a few weeks ago with a simple question: How do you know what to buy?

Simple enough question. The answer: it completely depends on your goals.

If you don’t know what your goals are for real estate investing (monthly cash flow, building equity, a future place to retire, funding your children’s college), it will be much harder to determine what a good deal looks like.

There are of course a few easy actions that can help you determine what to buy, even if you haven’t quite nailed down your goals yet.

Here’s a list to help you narrow in on what’s important to you:

1. Run the numbers. If you’re having trouble being objective about a potential investment property, put numbers into a spreadsheet to see how the deal pencils out. There are lots of good property analyzers out there. Check out these deal calculators from Bigger Pockets, and this one that I’ve used for years. Once you can see the hard numbers, it may make your decision easier.

2. Evaluate the alternatives. Say you’ve got money burning a hole in your pocket like my client does. You want to buy investment real estate, but the market you’ve been focused on seems saturated. Start looking in other areas to get a feel for what else is out there. Your money may go a lot farther in a different market, yet it could come with additional logistics of finding local experts to help with the purchase, renovation, and rental management. You’ll also want to research rental prices in addition to sales prices, because the ratios can differ greatly between markets. You may get more house for your money in another market, but do rents cover your costs? Again, deal analysis will help you weigh the different alternatives.

3. Go with your gut. While I’m not advocating basing your real estate investment solely on intuition, it can play an important part in your decision AFTER you run the numbers. Seasoned investors begin to have a sense for deals, areas of new opportunity, and can envision how a property could transform into something even more profitable. These are things that a novice investor may need time to develop, and can be gained through the guidance of an experienced realtor or investor group to aid in decision-making.

No two investors will approach the investment property search in exactly the same way, yet many of us go through similar processes to evaluate our options and decide on our next investment.

What other benchmarks or deal analysis tools do you use in order to make an investment decision? Tell us your tips and tricks in the comments below!