How to Find the Right Investment Property
What Characteristics to Look For in an Investment Property
A rental property is a powerful tool for generating income. Successful real estate investments have produced some pretty wealthy people. But before you can join this club, it’s incredibly important to understand a few basics.
Here’s the first one: a successful real estate investment hinges on finding the right property.
Keep reading to learn exactly what to look for when beginning your search.
No doubt you’ve heard that the three most important characteristics of any property are location, location, location. After all, you can always update the structure, but there’s nothing you can do about the location.
Where you choose to invest will determine how much income you’ll be able to generate and how much the property will appreciate over time. Below are a few location-related items to consider.
Are up-and-coming companies relocating near this location? Do you notice new shopping centers being built? Is the population growing or declining? All of these answers will provide insight about how much demand you’re likely to see in this particular location. A quick Google search will tell you exactly what you need to know.
People love convenience. They want to live near public transportation, parks, and dining/shopping options. The more convenience your property can offer, the more demand you’ll see. So as you make your decision, put yourself in the renter’s shoes and take a good look around.
The Property Itself
Although it can be tempting to want to follow in the footsteps of the latest HGTV real estate phenomenon, you want a nice, low-risk, “normal” property. By “normal” we mean practical, low maintenance, and properties that will appeal to the population in its neighborhood.
It’s good to know that average homes — think average square footage, number of rooms, etc. — generate more interest than wildly unique properties. The audience will be larger and that means more interest and more demand.
Avoid biting off more than you can chew by steering clear of properties that look like a major undertaking. While minor improvements like a coat of paint and a few repairs are to be expected, more significant renovations could result in long-term vacancies that can crush your investment right off the bat. Opt for the property that needs $1K and one month of work rather than the $6K and 6 months choice.
Appealing to the neighborhood’s population
Get to know your ideal renter, so you can determine which property type (single family home, townhouse, etc.) is the best choice. For a neighborhood with a younger demographic, an apartment or condo with an open floor plan and loads of natural light might be the best choice.
Strategic Financial Factors
Too often, new real estate investors underestimate how quickly the expenses of an investment property can add up and sabotage the entire endeavor.
To minimize that risk, it’s important to understand the many financial factors that contribute to your investment’s profit (or loss). Below are just a few.
When choosing a property, first calculate how much rent you need to clear in order to turn a profit. Be sure to factor in mortgage, property taxes, insurance, and utilities. Then ensure the monthly rent you’d like to charge aligns with average rental income of comps in the area.
More than just a mortgage
Roofs leak, pipes burst, appliances break, and plaster cracks. Homeownership is expensive, so be sure to take a close look at the property and properly budget for all the things that can go wrong.