Choosing which investment property is right for you can be a challenge. Here are 7 factors to consider before making an offer.
- Property Condition
- Underestimating repair or rehab costs is a fatal mistake in real estate investing. Overlooked red flags and unknown problems can rack up large bills and destroy a budget. Property owners should always have professional property inspection done on investment properties before close of escrow. Spending a small bit on the front end can provide huge savings down the line.
- Make sure to calculate the numbers before investing. Using conservative figures and running estimates on worse case scenarios can help ensure that you are prepared. Knowing the key figures will make you an educated investor and help you compare properties on a financial level. Here is a tool to calculate all the necessary numbers while selecting an investment property http://www.montereypm.com/calc/calc.php. Make sure your projected annual rents and repairs are realistic. Make sure to consider all the additional costs involved. This way, you will be sure to choose a property that works for you.
- Exit Strategy
- Exit strategy boils down to long term plans for the property. Will you be able to sell the unit down the road and make a profit? Will you be able to rent the property in the future and make money? If the answer is no, you may want to consider another property.
- Tenant Quality
- Bad tenants can cost you thousands of dollars. Evictions, missed rent payments, and property damages are detrimental to the bottom line. Always consider what your tenant pool will be to your potential investment property. Who is your target market? Even the best profit margins get destroyed by the wrong tenants.
- Many things can force vacancies. It typically boils down to supply, demand and the price point of the unit. If your expenses are so high that you can’t afford to list your property at a fair market rate, it will sit vacant. When purchasing make sure the property will attract quality tenants at a reasonable price point.
- Market Condition/Fundamentals
- Understand what drives your local rental market. Is your property located by a local military school, tourist attraction, or college? Is the local economy supported by strong agriculture business and tourism? Knowing the backbone of a community is vital in understanding the long term trajectory of your investment.
- Property Location
- The golden rule of real estate is “Location, Location, Location.” The direct location of the property down to the neighborhood it is in, street it is on, and where it sits on the block can affect the value of a property and your bottom line. Exit strategies, vacancy rates, and tenant quality are all directly linked to the location of your investment. Look for the positives of an area as well as the negatives to understand if this property is the right one.
Once you have taken all of these factors into account you can assess to see which property is right for you. Are you looking for high risk/high reward or something conservative? Are you aiming for appreciation, cash flow, or both? Does the property you are considering reflect you as an investor? The answers to these questions will help guide you to find the perfect investment property.