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Investment Properties: How To Spot Potential
Are you looking to grow your investment portfolio but unsure how to identify properties that will perform in the way you would like? Whether you are a seasoned investor or a first-time homebuyer, searching for potential can be a daunting, complex task. Investment properties, whether prospective rentals or flipped homes, can be exceptionally profitable if you make the right choice.
An investment property needs to fit into an investor’s vision for their future returns and the life they plan to lead. Affordability, financing, and return on investment are key factors when selecting the most suitable investment property. When shopping for investment properties, consider the following factors:
Capital Improvements
Many clients ask us, “what types of repairs are dealbreakers?” The simple answer is none- if the numbers work, they work- anything can be repaired if you can afford to have the repairs done. That’s the key- affording the repair. If a property needs capital improvements- a new roof, driveway, siding, etc., make sure you have worked those expenses into your numbers and know exactly what you are getting into. Your due diligence period is vital to this in order to eliminate any surprises!
Rules of Thumb
There are several “rules of thumb” that people use for analyzing investment properties; the one percent rule, the two percent rule, the 70% rule, the list goes on and on. Depending on your experience and the market you are investing in, those rules can be helpful for rudimentary analysis. The problem, however, is that many new investors never dig deeper than those rudimentary numbers and pass up on good deals or buy bad ones based on one simple calculation. Learning the nuances that make properties perform is crucial.
Location, Location, Location
The location of a property can be an essential determining factor in its inherent value. Knowing your market and what features will be desirable to their buyers will help in either selling or renting out that property. In fact, many renters are often willing to pay more if a property is in a desirable part of town or in a growing neighborhood.
Property Management
Many new investors think that self-managing is a great way to create better cash flow on a new investment. While it’s possible to self-manage well, the truth is that most new investors get themselves in trouble very quickly. Sometimes they end up with a professional tenant who is taking them for a ride, or they use a “free” lease that they found online and learn the hard way that it doesn’t protect their interest in the way they want it to. Finally- many new landlords simply don’t know how to calculate market rents and leave way too much money on the table every month. A good property manager will pay for themselves very quickly, so don’t overlook them as a valuable business partner, but make sure you vet them in the same way you did the property!
The entire real estate investment process can be daunting to undertake alone. As you look to grow your investment portfolio, ensure that you find properties that will perform in the way you need and expect them to. If you have any questions, feel free to reach out to one of our investment ninjas or check out our free guide on finding potential in investment properties.
