Step 5 is one of most important risk management tools available to investor in real estate. Each property has typically an inherent rate at which it can be rented, even if that is not your intent. By looking at rental rates, relative to amount of principle, interest, taxes, and insurance (PITI) that you will have to pay, then you can understand amount of cashflow that may be required to support property. If your objective is to produce cashflow, then you need to be cashflow positive very quickly. If your objective is capital gains and cashflow is negative, then you now understand what you may have to support on a monthly basis if things don’t work out.

Deferred maintenance then becomes our Step 6. For an existing property, how much maintenance has previous owner neglected that you will need to catch up? Be careful here since this can be one of major places to get nasty surprises.

And now I saved best for last: Step 7 is to determine your own personal risk tolerance. Some new investors look at a deal and only see positive. This is a huge mistake. EVERY REAL INVESTOR I KNOW HAS LOST MONEY IN A DEAL but they gladly will do more. Why? They understand their risk’s going in, they understand how to limit their downside, and gains are much larger than risks they are taking. If you were standing beside them and saw what they saw, you would gladly take risk as well and rapidly ignore any small losses that you experience.

Hopefully this has given you a good start at learning how to analyze a potential opportunity. Obviously each of these steps requires additional work or training but they are what separate new investor from seasoned, battle tested veterans.

So how do you tell difference? Since you need specialized equipment and training, average person cannot tell difference between a real and simulated diamond, unless it is of terrible quality. The best way to protect yourself when buying diamonds is to buy from someone you trust. The other thing is to educate yourself about 4 C’s of buying a diamond so you will know what to look for when you do go shopping.

These 4 C’s – color, clarity, cut and carat weight are what determine value of diamond. You may pay less for a large diamond that does not have good clarity, cut or color then you will for a smaller diamond of better clarity, cut and color but is it really worth it? The answer is mostly a matter of personal preference but if you deal with a jewelry you can trust, he or she can guide you as to best value for money whether you decide to buy a real or simulated diamond.

Lee Dobbins is owner and editor of Artisan Jewelry Online where you can learn more about the 4c’s of buying a diamond.