Essential Considerations Before Buying an Investment Property
First-time real estate investors generally find the search and process for sourcing an income-producing property overwhelming. Real Estate investing is not as straightforward as many may think. Needless to say, properties, when exchanged between buyer and seller, don’t immediately start performing or appreciating in value, if that were the case everyone would be an expert. If not well thought out, losses and diminishing returns can be a harsh reality. To avoid a money pit investors should be cautious before proceeding.
There is no ‘one size fits all’ approach that works, and property investing varies on a case-to-case basis. At the same time, there are some basic principals which one should consider before proceeding. Here are ten essential considerations to ponder.
1. Opportunities for employment
Locations that are popular due to job opportunities with population growth are popular choices. That in tandem increases demand as more people are looking for a home. Often migration follows if a large corporation establishes a presence in the area. Off-campus housing for college students is another viable option in educational hubs as there is a steady flow of students looking for a home.
2. Location is the mantra
The better the location, the more steady flow of renters. Connectivity, availability of public transportation, proximity to universities and colleges, business centers, restaurants, shopping, hospitals and other conveniences add up to the location’s appeal.
3. Rental rates
In addition to capital appreciation, monthly income earned through a rent roll is key to owning a profitable property. The average rental rates in the area will determine how much you could potentially charge. Therefore, do a thorough review of the rental comps and decide a price that is competitive yet covers your monthly running costs. If the amount is cash flow neutral or positive, your one step closer.
4. Safety is a priority
Security is a top priority and drastically impact the desirability of the property. Research crime rates in the neighborhood past and current. Keep in mind history is not allows a good representation of the future potential. Residents and local city council websites can be a great resource to explore.
5. Basic amenities
Renters choose neighborhoods with conveniences that cater to their day-to-day requirements. Attractions like movie theatres, parks, shops, gyms, and recreation areas can be a big attraction. Condominium apartments are the most straightforward investment properties for beginners. Condos are easier to purchase and maintain and are often located near desirable amenities. When owning a condo you also do not have to worry about water, power and other routine maintenance issues as they a dealt with by the buildings board and property management company.
6. Educational institutions
For many renters with children, the choice of the location also depends on educational institutions for their children. For investors, it makes sense to keep an eye out for schools and colleges in the neighborhood so that your property can appeal to a boarder audience. It can also greatly enhances the prospects of capital appreciation.
7. Development in focus
Development plans for the area might negatively or positively impact the rental potential and property valuation. Therefore, perform extensive research to find out about ongoing and future developments which may be planned for the area. If a neighborhood is in the early stages of development, that could be an opportune time to capture a share but keep in mind new neighborhoods are often riskier than their established counterparts.
8. Availability of inventory
In addition to all the above, your investment decision should also consider the supply and demand of the particular area. If a location is slated to get a massive influx of rental units in the near term, the chances are your vacancy rate could be higher and rental yield lower. Properties in such places can take longer than usual to rent and generate returns.
9. Property tax
It is essential to know the property taxes and all applicable monthly charges when buying and maintaining a property prior to investing as they directly impact your profitability. Initially, you are required to pay closing costs, but there are always monthly expenses to maintain a property. You need to keep your monthly expenses under control to try and make your investment profitable.
10. Get an insurance cover
It is one of the most critical yet most ignored aspects of real estate investment. Homeowners insurance is a cost to cover unforeseen risks. Most people frown when having to pay for insurance. However, everyone understands that the price of fixing a property damaged due to any reason is much higher than the insurance costs. It is required to make insurance a necessary element of buying and managing a property.
When all the above factors are considered, narrow down the search to properties with good projected cash flow and potential for appreciation and zero-in the best one. Seeking representation from a seasoned real estate agent would provide you with helpful insight and a better understanding of a properties potential.
History shows buying a property is the foundation for building wealth and is still one of the most significant investments by retail and institutional investors. These simple points go a long way in protecting your wealth and giving future returns which can set you for your retirement and provide for the next generation too.
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