Real estate has traditionally been a very sound investment strategy. Properties you buy to rent or fix and flip can be an excellent way to earn secondary or even primary income.
While the home you live in shouldn’t be looked at as an investment because it’s often an expense that doesn’t generate an income, properties to be improved and sold or rented are a very stable place to grow your assets.
It is important that you understand real estate in your area before you invest. You should know the current market and the differences between locations, demographics, and property types. You should also be aware of extra costs, such as maintenance and fees, that are higher for some properties than others.
6 Things That Make an Investment Property a Slam Dunk
If you’ve decided to purchase property as an investment, here are some things you should keep in mind as you research different locations.
No matter what state or area you live in, there are differences between the neighborhoods. Location is at least as important as the type of property you purchase, and arguably more so. Different types of properties are also more desirable in certain locations.
For instance, if the neighborhood is excellent for families, you’ll want to make sure that the rental property is equipped for people with children and possibly pets. The location will dictate the type of rent you can charge for the space. You’ll also notice that some neighborhoods are more desirable for professionals while other neighborhoods are great for tradesmen and city workers.
2. Solid Construction
You should always have the property professionally inspected before purchasing. Whether it’s an apartment building or a single-family dwelling, the owner is responsible for making certain that the building is up to code and safe for any tenants.
If you’re buying a property to flip, you might consider purchasing a place in need of some major renovations. You may not want to invest that kind of money in making major changes to a rental property. Look for a property with good bones, meaning the exterior and interior may have seen better days, but the foundation and structure are still in good shape.
3. Good ROI
ROI is the typical way that most investments are measured – return on investment. With rental properties, it can be a bit different. Most property investors look for the cash on cash return.
This concept helps you to estimate what your yearly profit should be based on your initial investment price and any loans and fees. Ideally, you want to invest in a property where your yearly income from renting the property will pay for the upkeep as well as some income for you.
4. Low Maintenance
The less you need to repair, the more you get to keep to reinvest or save. When you purchase a property, make sure you know the age of things like the HVAC system and the roof, so you can budget in those major replacement costs.
Certain areas may be more prone to maintenance costs than others. For example, you may want to avoid investing in properties in flood zones or where severe weather is prominent.
5. High Appreciation Potential.
In real estate, appreciation is the term used when a property is worth more in value at the time the owner sells it than it was when they purchased. Often properties to appreciate over time, which is why they are such a solid investment.
You can also look at a property to determine whether some updates will improve appreciation. Properties in up-and-coming neighborhoods offer high appreciation if the area continues to develop in popularity after your purchase.
6. Cost of Property Tax and Insurance.
Ideally, you want the lowest possible property tax and insurance costs for your rental property. These are both expenditures that will eat into your profit.
Are You Ready to Invest in a Rental Property?
Finding the right investment property doesn’t have to be difficult. At New Western , we make it simple. One of our local, licensed agents will reach out to learn more about your investment goals and match you with exclusive, off-market properties.