Purchasing an investment property is and always has been one of the most lucrative options for growing wealth, as seasoned real estate investors know. But there’s no such thing as a guaranteed return on your investment. In order to succeed as a real estate investor, you’ll need to learn which qualities are most important for your portfolio of properties.
The most beneficial characteristics for an investment property are dependent on the type of investment that most interests you. Although it’s uncommon to find an investment property that ticks all the boxes, you should try to find as many of these qualities as possible.
If you’re ready to invest in a property that will serve you for years to come or act as a springboard for other projects, ensure that the property has qualities that align with your goals.
Investing in Residential Properties
Allocating your funds towards buying up residential properties is a wonderful way to enhance your investment portfolio, but choosing the right purchases can be challenging for even the most experienced investor. It’s of the utmost importance that you research thoroughly before committing to a residential investment property, especially if you are buying multiple properties in the same area.
Ask yourself the following questions about any potential candidates:
- Is the property in the right neighborhood? The neighborhood in which you choose to invest will determine your property’s vacancy rate and the tenants interested in living there. For instance, a property near a university could mean that your primary tenants will be students, which often leads to increased turnover and vacancy rates in the summer. Furthermore, some towns discourage rental conversions with high permit fees, so be aware of this before investing.
- Are property taxes reasonable? If property taxes are high, it can negatively impact your bottom line. However, high property taxes can be a good sign in some cases. If the home is in an attractive location, increased property taxes can go hand in hand with an increased likelihood of long-term tenants.
- What amenities does the property have? When tenants are comfortable, they are more likely to stay for an extended period of time. A prime residential investment property will have nearby parks, restaurants, gyms, and public transportation. Renters will also find properties with amenities such as a spacious yard or smart features attractive, so consider these qualities as well.
Investing in Rehab Properties
Many people are attracted to purchasing lackluster properties, fixing them up, and turning a quick profit. However, finding a suitable rehab property for this kind of “flipping” is more difficult than new investors may initially think. Oftentimes, a house isn’t priced low enough for an investor to earn a worthwhile profit. In other cases, a house at an extremely low price isn’t worth the effort it would take to improve.
When you’re searching for a house to fix and flip, look for the following characteristics to ensure that it’s the best investment possible:
- A lack of curb appeal can be beneficial. Typically, retail buyers don’t possess the expertise to look past an unsightly yard or chipping paint. When you’re interested in a rehab property, it’s important to see the potential in a home. Although a house may have a poor appearance, it’s essential to do your research and see if the home has redeeming qualities that retail buyers may overlook. This includes ensuring that pipes, electrical wiring, and the foundation of the house are in relatively good condition. As long as these are in decent shape, the aesthetic qualities can be easily addressed to command a higher resale value.
- Do not pay the retail price. When you’re interested in flipping a home, it’s in your best interest to adhere to the 70% rule, which states that investors should pay no more than 70% of the home’s after-repair value minus the renovation expenses.
- Check in with the neighbors. Before making an offer on a rehab property, ensure that the neighbors will not be disruptive or off-putting towards potential buyers. If the neighbors are excessively loud, or the neighborhood could cause potential tenants to feel unsafe, it will be challenging for you to receive an adequate return on your investment.
Investing in Properties for Redevelopment
If you’re in the process of evaluating a property for redevelopment, it’s crucial to perform due diligence and make informed decisions. Although commercial real estate can move at a breakneck pace, it can cost you big time if you attempt to cut corners.
The best redevelopment properties have the following properties:
- Are you aware of the boundaries, zoning, and liens? Using old surveys for a redevelopment property can cause significant issues. In this instance, you’ll need to work with a land surveyor who can perform a current assessment of the property to prevent any legal issues. Work with your local land planning department so that you are aware of future plans that could negatively impact the property’s value.
- What is the intended use of land? Ensure that you are clear about how you intend to use your investment property, because this will affect your interest rate, loan, and down payment. Furthermore, you will need a builder to give you construction costs to estimate your projected return on investment accurately.
- How do you intend to finance your redevelopment property? When you’re financing a redevelopment property, the process can become quite complex. Some investors prefer to obtain financing through local banks and credit unions. However, seller financing may be a better option in other cases because the loan agreements are negotiable.
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