Choosing a property for investment is a process that requires intensive research and investigation in order to avoid making a non-profitable purchase especially for those who are just getting started in the real estate business or are going through their first investments experiences.
We have selected several key elements that will help you select the property that works best for you.
1. Define Why you are Buying
What is the purpose of the property you are investing in? Are you going to buy it to renovate and sell right away or are you planning to own the property for the long term? Define exactly what goals you would like to reach with this specific property so you can create a plan based on that goal. For example, are you trying to increase your wealth or are you looking to increase your monthly cash flow. These are questions you need to answer yourself before you make any decisions, as it will set the standard of the properties you are looking for at the moment.
Decide based on your income, down payment ability, and financing options what price range of property you should be searching for. Do not burden yourself with a property out of your price range as the financial stress may lead to making further poor decisions that could lead to the loss of the property. Remember along with the cost of the property itself, account for the cost of maintaining the property which plays a big factor in being able to carry the property should you not be able to rent it our resell it as quickly as planned.
Look around and see the status of the nearby areas that surround the property. Try finding any red flags if any that could be potential deal breakers for tenants; or amenities that would be helpful or interesting to them. Put yourself in the tenants shoes and take note of what you would like and dislike about the neighborhood you are considering investing in.
Regardless the location of the property, while you are walking looking for red flags or interesting amenities, check if there are any property vacancies. If you there aren’t many, then the area must popular enough. Yet if you seem to find too many vacancies, perhaps you need to investigate why and consider whether or not to invest in the area. Otherwise you will be competing with other investors in a dead zone.
5. Property Conditions
It is a must to evaluate the state of the properties you are considering buying. If you buy a used property the chances are that there are repairs that need to be done. Some repairs are obvious, however some may only be seen by a licensed professional that knows what to look for. Have an estimate done of the cost of the repairs you may have to do then compare the estimate to your budget and your revenue plan. Does it work? If it doesn’t, it’s time to move on.
Now, if you are buying a new property the chances you have to do repairs are very low, yet it is also important that you do some research on the property’s developers. Check how their other properties are going and also see if there have been any scandals regarding the company. Last but not least, perform a small investigation about how the tenants feel living in that property. The last thing you want is to purchase a property from a developer with bad history or that doesn’t want to take responsibility for expensive repairs like leaks and basic infrastructure damage.
6. Future Developments in the Area
This is a key factor that could make or break a deal. If the area you are thinking about purchasing in is being highly developed with new high-rise buildings and/or single homes, this could be both a positive and negative deciding factor. Substantial development means the area is growing and people are interested in living there however it also means there will be a lot of options for tenants to choose from which could potentially bring the over all rental market down pricewise.
Another interesting factor to look out for is the development of small shopping centers, restaurants, and local businesses that can be an added value for your future tenants. Take the time to see if there are any future developments before you buy.
Are you liquid enough to carry your property should it remain vacant for a couple of months? Will you be able to handle your finances if there’s a shortfall at the beginning? Do not put everything you have in one place. That’s just to say to be cautious and avoid getting emotional about a property that you are not sure if you can afford.
Make sure you take all of these elements in consideration before moving forward with a big purchase. The more you ask, investigate, and research about a property the better. Information is power and with it you can avoid making rookie mistakes that could cost you more money than you thought.
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Top Mistakes to Avoid When Investing in Real Estate.