Finance

5 Things to Consider When Buying Investment Property

5 Things to Consider When Buying Investment Property

When buying an investment property, there are many factors you need to pay attention to. Many people simply choose to buy a property that they believe will make them rich in no time but they make a big mistake by not doing the proper research before that.

The fact is that not all properties are equal and their advantages and disadvantages are what will make the difference. If you have decided to start looking for a good real estate, you also need to have in mind what a prospective renter’s preferences are.

Here are the things about a real estate to consider:

1. An attractive location

Location really is one of the most important factors, the one which will allow you to get a great return on the investment you make. The location determines the amount of rent you can set and the vacancy rate.

If you are aiming to rent the real estate, it’s best to look for an estate in the neighborhood close to various amenities. Good public transportation and schools, shopping and medical centers and parks in the vicinity, access to good restaurants and a job market are the factors that will make the real estate highly appealing to potential tenants.

Check the level of safety in the neighborhood, too. The surest way to inform yourself on that is to contact the local law enforcement agency to ask about the level of vandalism and crimes in the area. Check if those numbers are decreasing or increasing, as that will give you a clearer insight into what to expect in the years to come.

2. Low maintenance of the estate

You should know a couple of things here: vacation rentals and student rentals need more time to maintain properly. Also, properties situated in low-quality areas, which are also in a bad shape, will also need you to do more and spend more.

Properties that require low maintenance are the ones that will be appealing to long-term renters. Most of the time, they won’t as flashy as some other real estates but that’s completely fine. What you need is a real estate that’s steady.

If you are not planning to hire a property manager but to maintain the property on your own, then you should look for a property that’s close to your home. It would cost you too much time and money to drive for a long time (or even fly) to get to the property every time when a problem arises.

3. Your expenses and potential profit of owning a real estate

You need to be sure that you will have the budget needed for a certain real estate, meaning there are three factors to consider here.

Firstly, when you find a real estate you’re interested in, check how much the expected rent rate is. It will depend on the location, of course, but also on the quality of the property.

Secondly, you need to determine how high your annual expenses of owning that property would be. The expenses can be divided into two types: fixed and variable ones. Fixed expenses include annual property taxes, insurance, maintenance, and repair, as well as the cost of hiring specific services.

On the other hand, variable expenses represent unplanned expenses, like broken heating system or a fridge that needs to be replaced at one point. That would mean at least $1000 a year for unexpected repairs. Also, you need to be aware of the fact that you won’t be able to find a quality renter, which would change the rules.

As the potential expenses are a complex factor in some countries like, for example, Australia, it’s no wonder property buyers consult professionals. Many people turn to residential quantity surveyors for advice to have a clearer insight into the expenses they would have.

Thirdly, there are risks to take into account, too. There is the risk that you won’t be able to find a new renter fast, meaning that the property would be empty for some time, lowering the overall return. In case you have to evict a tenant they cause damage to the property, certain legal expenses could be incurred on you.

 

4. Old or new real estate

To be clear, there are benefits to both types of real estate. In some countries or states, there are grants or concessions to help you in case you are a first-time buyer of a new property. You may even get a certain amount of money. Buying a new property also means you can design it specifically for the market in question.

However, buying a new property from a property marketing company means there will be added commissions. You need to find out how high the commissions are and how much the property will be worth after the works are complete. On the other hand, you will have the opportunity to add value to an old property but bear in mind you will need to do more maintenance.

 

5. Expected potential

You need to look for a real estate that appreciates in value, which can be seen in two phases. The first one is when you buy a property, while the second one is when you sell that property.

When you are planning to buy, look closely at the potential you could get if you do certain updates to the property. For example, you need to know how much you could raise the rent if you replace the flooring or the heating or paint the walls in comparison to leaving the state unchanged.

You also need to know how much the property will be worth when you decide to sell it. Every estate will have higher appreciation over time, but you need a big increase to make it worth the trouble. You should check with the city hall about plans to build new amenities in the neighborhood to know how much the increase will be.

 

Final comment

Buying a real estate will only be successful if you take these factors into consideration. Otherwise, you’ll be on the way to lose a lot of money and time without any real profit.

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