There is no place for sentiment when investing in real estate, unlike when purchasing a personal residential property. As such, more research is needed when buying investment properties.
It’s not uncommon to see novice property investors become perennial researchers and analysts who barely buy any property. They are so caught up in fear of making a bad deal that they overthink and miss out on juicy and potentially profitable deals. How can a first-timer know what to search for?
Here are six factors that investors need to consider for the right investment property.
1. Location
Whether you’re investing in a luxury condo or a cozy single-family home, location is one of the chief deciders of profitability in real estate. It decides how fast a building is rented out, who the tenants will most likely be, and if seasons will impact these factors. With the investor aware of these factors, they can better plan their finances and set appropriate expectations for their returns on the investment.
2. Property Taxes
Property taxes vary and can change based on increased property sales in the area of interest, state and local budget decisions, and specific property improvement projects.
Not knowing how much taxes a property attracts can blindside investors and compound their financial woes. With property taxes affecting profits from investing and the ability to resell a building, understanding the property’s tax situation will save you a lot of trouble.
3. Property Aesthetic and Condition
The condition and look of a property — how spacious the rooms are, how they are set up, and the presence of additional spaces like gardens — can affect the vacancy rates. The better the property is, the more likely tenants will be in line to fill it.
If the property’s condition can violate tenancy rights and laws, appropriate repairs should be made. Investors do not have to bear the burden of such renovations; they can factor repairs into rent costs before leasing.
4. Growth Potential
Assessing a property solely based on what it currently is can be reckless. This is because the property and neighborhood’s future must be considered. One such way to evaluate a property’s growth potential is by checking in with the municipal planning department and being acquainted with possible development plans. If there are none, the odds are lower of a new competing property or low occupancy rates. The reverse may hold true in the presence of active area development.
5. Employment Opportunities
The viability of the job market in a neighborhood can significantly affect the chances of investors having tenants for their residential properties. The presence of a major company or business is an excellent marker for a growing occupancy rate.
In addition, the kind of employment prevalent in the area will come in handy when making renovation decisions to include specific amenities in the property and increase its general appeal.
6. Average Rent
For property investors, the average rent in a location is arguably the most important aspect to research. This is because the rent is the primary income source and determines if it’s enough to cover the management of the property. If not, the investment may require more yearly funding, causing the investor to be bankrupt. Setting the price for a rental has to strike a balance between not being overpriced for the area while still generating sufficient income.
Be Sure to Research Your Investments
These factors are only some of what investors need to consider. Still, it covers the fundamentals and hints at the kind of attitude they should possess. For investors, time is relative. While it is advisable for sufficient time to pass before making investment decisions, it is also a fact that the fastest fingers get the best deals. Successful investors are careful enough to doubt the face value of a property but swift enough to get the best deals.
