The Top 5 Priorities for Real Estate Investors
If you are looking to purchase real estate as an investment, you have to get your priorities in order. Whether you are buying a single rental unit, planning to fix and flip a house, or wanting to purchase multiple units and make this your full-time business, you will want to find the right property (or properties). Here are some of the features you should prioritize when searching for the best real estate investment opportunities:
Location should almost always be the first thing you consider when looking at houses to buy for investment. Understand the neighborhood and its historic real estate trends. Look for up-and-coming areas with future potential, or play it safe with a location that has always had relatively strong market conditions. Rental property buyers will want to look at the type of people who are likely to rent in the area and make sure good tenants are available. They will also want to look at average vacancy rates for similar rental units. House flippers will want to project a realistic resale value based on comparable properties and recent sales.
2. Property Appeal
You’ve heard the term “good bones” on house renovation TV shows. It’s just a catchy saying, but there is plenty of truth to this concept. Real estate investors will either want to find properties that look good now, or will look good once they are done with a strategic renovation. We’re talking about the physical appearance of the entire property (inside and out), as well as the floor plan, square footage, energy efficiency, landscaping, and other features that potential buyers/renters will find attractive.
3. Cost of Ownership
You have to look beyond just the potential earnings of a real estate investment. You must understand the overall cost of ownership. House flippers need to look at the purchase price and renovation costs, along with any other ownership and selling costs that will be accrued from now until when the flip is complete (utilities, taxes, insurance, real estate agent commissions, etc.). Rental property owners have to consider mortgage payments (if financing the purchase with a loan), property taxes, insurance, repair and maintenance costs, property management fees (if hiring a property management company) and other expenses that will eat into any rental profits from month to month.
One major benefit of buy and hold real estate investment is the appreciation. Even if you are not making much from month to month with a rental, the property is still likely earning significant home equity for as long as you own it. This gives you more leverage and potential cash flow down the line. Fix and flip investors may not benefit from the long-term appreciation, but their profits are found through a fast sale. Make sure the numbers add up for a successful flip, meaning the final projected selling price significantly exceeds the costs of purchasing the home, renovating the property, and any costs of ownership during the time it is owned.
There are no guarantees in life, and there are certainly no guarantees in real estate investment. You are taking a risk by investing a lot of money in a property that may or may not generate profit for you. Successful real estate investors will always understand the risks involved with any property purchase. The key is to mitigate risk with smart investment planning, careful budgeting and effective execution of your business plan.
These are just some of the most important priorities any real estate investor should have when purchasing a new rental or flip property. For additional information and resources, visit our Buyers section and consider joining the exclusive PropertyLark investment network.