Real Estate Investment: Analyze Before You Buy

Real Estate Investment: Analyze Before You Buy

Property is one of the most historically sound and profitable investments that you can make. Aside from the fact that it is a tangible asset that, over time, will likely increase in value, it’s also fairly simple compared to more complicated financial investments such as stocks or mutual funds.

But whether or not you are an experienced real estate investor, or this is your first time purchasing for profit, there are a number of things that you should look into when considering any property so that you can be sure to have a long and happy financial life with your new acquisition.

Take a look below to see if you are ready to go ahead with a deal, or if you should conduct some more research before signing your John Hancock.

Location

When purchasing investment property, you need to think about its long-term potential, and where it’s located will have a big impact on that. Is there future development planned in the area, and will it be beneficial to you?

For example, areas in which future development includes amenities and desirable upgrades may increase your profit over time as it will increase demand, and could raise property value.

Alternatively, areas where airports or industrial buildings will be built in the future could decrease your property value from a rental perspective as future tenants may be less inclined to live in those types of areas.

The current area can also affect the desirability. Scenic views and reputable neighborhoods may increase the cost, but that also means that you can charge a higher amount for rent. Areas with negative reputations may come at a lower price, but they may also deter tenants.

Cost of Investment

When purchasing an investment property, you don’t only need to consider the initial price that is listed, or even the price that you negotiate to. You also need to consider what else you are going to have to put into it in terms of renovations, tenant placement, advertising, etc.

Is it a turn-key opportunity, or will you need to put time and money into fixing it up and making it ready for tenants? Are the upgrades simply cosmetic, or do you need to have a significant amount of work done?

A lot more can go into a property than just the initial cost. You also need to consider if you will be able to continue to support the property if it has to go without tenants for an extended period of time for whatever reason, as well as what you will do if the market changes and rental prices drop.

Another financial consideration is what it will cost you to get the property up to code. If you are hoping to convert a single-family home into a multi-family rental, you will need to make sure that it meets residential zoning requirements and standards.

Property Type

There are all kinds of residential properties—from condos and townhouses to single-family units and apartment buildings. What you choose as an investment property depends on your experience and your budget.

A condo will generally cost you less than a single-family unit, but then you need to consider condo fees and ensure that your tenant complies with the condo board specifications.

A townhouse or a duplex are somewhere between condos and single-family homes, both in price and in property-type. One thing to keep in mind with townhouses is that you won’t get much in terms of land, which will limit your property value.

A single-family home can be a decent investment in the right circumstances. The issue being that these homes are mostly located in suburban and rural areas, so they are more likely to be farther from amenities and event venues, which can lower the rental value.

An apartment building is one of the most financially viable options, since there are so many units, but only experienced real estate investors should attempt to manage one, unless you have a property manager. Multiple units may mean more profit, but it can also mean more stress, both financially and personally.

Your existing portfolio can also affect your new investments. Try to invest in properties that you are experienced in, or that you feel comfortable with managing. If you decide to select a property manager, make sure it’s someone who is reliable in managing that type of property and tenants in that area.

A Real Estate Agent

Not all real estate agents are the same, and your investment can depend heavily on who is helping you to find a property. You’ll want an agent who has experience in investment properties specifically, and who understands your investment goals.

Remember that just because your realtor has experience with buyers and sellers, it doesn’t mean that they’ll be your best option when searching for a long-term investment property as a future landlord.

How You Want to Invest

There are multiple ways to invest in real estate, from investors groups to flipping houses, but for general, straight-forward deals you still have a few different options to consider.

Your first option is to invest on your own. This means that you become the sole owner of the property and are fully responsible for the mortgage and so on. This is the most common way to invest as a first-time landlord.

Your second option is to partner with someone. This could mean that you each put in cash towards the house, or perhaps one of you pays the mortgage while the other manages the property. You and your partner(s) share responsibility for the property and split the monthly profits between you.

The next option is to be an investor from a simply financial standpoint. This is for long-term investors only, who hope to keep the property for a number of years, until it has increased enough in value to warrant selling it. These types of investors generally have property managers who take care of everything from ensuring the bills get paid to maintaining the property, and they may even live in different countries.

Taking the Long Road

While real estate investment may not net you large, immediate returns, it continues to be one of the best and safest ways to invest your money. Of course, there are risks involved with any type of investment, but if you look into your options carefully, and you do your research, you should be on the right track to setting up a property that will reward you in years to come.

Do you own any investment properties? What are the most important factors to you when selecting a property?

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Brittany Foster

Marketing Writer at LawDepot
Brittany is an ardent reader, writer, and blogger.
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