What You Should Look For In Investment Properties
Guest Post By: Nicole Hardey – SVP of Marketing at Renovo Financial
Becoming a real estate investor is a practical decision that can help you accumulate wealth over time. Like any other investment, you’ll want to make sure that you are putting your money in the right place. When you consider properties for investment, you shouldn’t just buy the first one you see at a reasonable price. In order to get the best return, you should make sure that each property meets the following requirements.
Ideal Location for Investment
Location may be the biggest part of your decision. You should target your search to neighborhoods that are in high demand for the type of investment you intend to make.
Research average monthly rent and nightly vacation rentals for the type of home and the ZIP code to confirm that you can make enough money to cover your expenses. If you want a rental home, you should probably look for sites that are close to transit options and shopping. By comparison, if you’re thinking about vacation rentals, you would do better to find a location that appeals to tourists.
Good Condition
The condition of the property can affect its price, and homes that need significant repairs are often much cheaper. You should evaluate how much time and money you’re willing to put into rehab before you buy a fixer-upper, however.
A home in a great neighborhood that needs some updates could be an excellent investment. By comparison, a home with decades of neglect may become a money pit. Get an inspection to have a sense for what you might be dealing with, and don’t hesitate to pass on a property that feels like more trouble than it’s worth.
Manageable Operating Expenses
There are several factors tied to making a profit as a real estate investor, and keeping costs down is one of the most important. Keep in mind that you’ll have ongoing expenses to pay back loans and maintain the property. For each home you consider, do some estimating on your monthly costs for these and other expenses:
- Mortgage
- Upkeep
- Property Taxes
- Insurance
- Property Management
The best way to minimize your expenses is to choose a home that doesn’t need a lot of upkeep at a price that’s lower than other homes in the neighborhood.
Reliable Income Opportunities
The difference between your income and expenses is your profit, so it makes sense to choose a property with high income potential. For each neighborhood you consider, research the history of the real estate market and rental income.
Rent often corresponds to the cost of housing in the area, but they don’t always go hand-in-hand. You should set the rent at a price that tenants would be willing to pay in an area where they want to live, or else you risk leaving the unit empty. It’s often better to make a reliable choice that offers a modest regular income than to take a chance on big profits that may never happen.
Long-Term Growth Potential
Most investors eventually sell their investment properties, which can add another layer of potential profits. Even if you’re planning to own a rental property for decades, it’s still a good idea to feel out the future of the market in the area. Be realistic about your expectations for the property and determine if the market makes it a good investment.
For a short-term plan of a year or two, you should look for homes in areas with fast-rising home prices. For long-term plans, search for homes that are likely to compete well on the market over time.
Real estate investment is a popular approach for people who want to grow wealth, expand a portfolio or plan for retirement. It can be complicated work — especially for new investors — but it starts by finding the right property. By considering these factors, you should have a better chance of choosing a property that will suit your investment plans.
Author bio: Nicole Hardey is SVP of Marketing at Renovo Financial, a real estate investment loans company.
