What to look for when buying an investment property


Investing in a rental property can seem like a quick and easy way to make additional income, but there are a lot of factors to consider before diving into the world of landlords and tenants. If you choose wisely and are careful with the management of your property, it can certainly be a great investment both short-term and long-term. Here are a few things to consider in your search for the perfect purchase:

Cost

Before all else, consider the listing price of the home. Can you afford it? There is no sense investing in a more expensive property if it will take you twice as long to start making a profit on it. Conversely, if you find a ridiculously inexpensive fixer-upper, you need to consider the cost of renovations that would need to be done, and the amount of time it would take to complete the project. Six months of renovations means six months of rent you are missing out on. A house in perfect condition may not be what you’re looking for, either. Remember, tenants can be destructive and making repairs to the damage they’ve done can be extremely expensive. Ideally, you are looking for a happy medium between these two. A fixer-upper that is not a total rehab, at a price you can realistically afford.

Location

You will most certainly find less expensive properties in less desirable areas, but the places you find in more trendy, popular neighborhoods will likely be priced too high, depending on your budget. If you are looking to invest in a city outside of where you live, it is EXTREMELY important to do your research. You cannot blindly select a property to invest in based on price alone. Whether you do extensive research yourself or use a consultant or property management company, choosing the right neighborhood is essential to the success of your investment. You can try to predict what the next up and coming area is going to be and try to buy a place there, which may not always turn out in your favor, but if it does your returns will be significantly higher than elsewhere. Or you can look in areas that are already beginning to experience a resurgence, where you are noticing more new businesses moving, where rent (for now) is on the lower side, where renters are starting to gravitate towards. This may be out of your comfort zone, but as long as it’s not too uncomfortable your purchase will be worth it.

Size

Narrow your search to reflect what is realistically manageable for you. If this is your first rental property, you should consider purchasing a one or two unit home rather than a twelve-unit apartment building. What can you handle? It’s better to start small and work up to larger projects. Same goes for renovations. The less work you have to do, especially if you do not have much experience with home improvement, the better.

Buying a property is a big investment, of both money and time. Be sure you are prepared mentally and be sure you are prepared financially. What you eventually collect in rent every month only covers so much of the cost of regular maintenance and upkeep. Unexpected (and unwanted) repairs are not only a headache, but they can eat away at your budget aggressively. Even if you are contracting out your updates or renovations, you will still spend a significant amount of time scheduling, meeting, and overseeing these projects. In the end, it will be rewarding, but make sure this is really something you are prepared to commit to before diving in headfirst.

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