What To Look For In Investment Properties
3 min read
Real estate investment gives investors a way to build or expand a portfolio through an income stream that is mostly passive. Of course, in order to achieve your goals, you have to know what to look for in a property. Although most properties present investment potential, the prospects depend on a variety of factors. Keep these aspects in mind as you start to narrow down the list of options.
Good Location
As many real estate experts say, there is nothing more important than the property’s location. When you start to look for potential investment properties in a particular area, be sure to include a detailed analysis of the neighborhood. Proximity to urban areas, access to public transit and amenities can affect the cost of living, which includes average incomes, rent and housing prices. Look for a neighborhood that is established and comfortable or up-and-coming. Avoid areas where it seems as though everyone is trying to leave. For each property, it’s also wise to evaluate noise, traffic patterns and even the view from the main living spaces.
Lower Operating Costs
The goal of real estate investment is to make a profit, which is easier to do when the operating costs are lower. Great properties in the best neighborhoods may look wonderful to prospective tenants, but they can also drive up the cost of buying the unit in the first place. Investors should look to strike a balance, choosing homes that are in good general condition but cost less than the competition. A lower purchase price makes it easier to flip for profit or rent to a tenant at a rate that is higher than the total operating costs for the property.
Investment Potential
The potential for investment depends on the investor, and not every property will meet all the right criteria. It’s important to decide which type of investment is the priority for you; it may change the way you look for properties. Some neighborhoods have high average rent prices in relation to the cost of housing, which makes it easier to get a good return on a long-term investment. Others have skyrocketing home prices, which improves the rate of return for a quick resale. You can find homes that will work in any scenario, but you’ve got to balance the amount you pay with the rental income or resale price you’ll get in return.
Minimal Maintenance
Every investment property requires maintenance, but some take a lot more than others. You might get a great price on a rundown property, then spend all your profits trying to get it to a reasonable condition. Ideally, you should look for homes that could use some updating but don’t have serious issues, such as water damage, mold or foundation problems. Unless you’re looking for a turnkey investment property that needs essentially no work, it’s a good idea to get a thorough home inspection. An inspection can make it easier to set a budget for repairs and upgrades.
Future Growth
When you make the right choices, investment properties allow you to earn profits in more than one way. Long-term rental properties pay for the mortgage and operating costs of the property, while you accrue equity as the home appreciates in value. Short-term investments, like a fix-and-flip, increase in value due to improvements and local market demand. In either case, you should look for properties that stand to grow in value over time. Homes in areas that are losing value can make it harder to get consistent profits, especially for short-term investments.
Investing in real estate is often touted as a financial decision that anyone can do, from beginners to experienced investors. In truth, it takes careful planning and research to find the right properties based on the type of investment. By considering these factors, investors can minimize problems and increase their potential for future profits.
Author bio: Nicole Hardey is SVP of Marketing at Renovo Financial, a real estate loan company.
