7 Things to Consider When Purchasing an Investment Property

by Allyn Barnum on September 13, 2018

Do you plan on purchasing an investment property in the near future? Before you do, check out these seven things to consider to ensure you're ready.

Are you considering investing in real estate? Property investment is a lucrative business. It provides supplemental income to thousands of Americans.You might have seen shows like Income Property on TV. They teach homeowners the ropes of renting. There are always unexpected challenges and a hefty learning curve.

Becoming a real estate investor isn't for everyone, but it is for some. Choosing the right property to buy is the biggest hurdle. The number one priority is bringing in a profit.If you're interested in learning what it takes to be an investor, keep reading. Here are seven things to consider when purchasing an investment property.

1. The Housing Market

The American housing market is prone to unexpected highs and lows. Before you even look at properties for sale, do a full analysis of the area's real estate market. Is it a seller's market or a buyer's? Notice how many rentals exist in the area and their rate of vacancy. The housing market in the area you choose should have constant renters. You may choose to offer short-term rentals instead of long-term. This means using websites like Airbnb to rent out your property. Short-term rentals are lucrative in areas with tourist attractions or a growing economy. Whether you rent out to tenants or short-term visitors, you need to understand the market. A real estate analysis can give you realistic expectations of what you can charge.

2. Ideal Tenants

Who are your ideal tenants? Are they young families, college students, or retirees? Be as specific as you can when deciding who your ideal tenants are. You may prefer to rent your property to short-term business people. A town with a growing economy will see many professionals coming and going for work. Knowing who you want to rent to will help you choose a property to buy. For example, you may not want to deal with a high turnaround of tenants. Renting to a young family who can grow up in your property is a great option. But, this means you will need to buy a multi-bedroom home. Get clear on who you want to rent to and what your goals are for renting. This will guide your buying process when looking at properties.

3. Location

You know your ideal tenant and have chosen an area with a real estate analysis you like. Now, it's time to specify the location. It's important to choose a neighborhood that's safe. A low crime rate is crucial to attracting ideal tenants. You may also want to locate important amenities and establishments. Schools, daycares, and community centers are great for families. Young adult tenants will want to be near restaurants and entertainment. Every tenant will want nearby grocery stores and banks. Properties near a university or college will have a routine influx of renters. But, you may also face complaints from neighbors if your tenants are loud or disruptive.

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4. Condition of the Property

If you've found a property in the location you want, assess the condition. This step can make or break your decision to buy. Start with the curb appeal. Can you make the outside appearance of the property look appealing? It doesn't have to be extravagant. Tenants like to see well-kept lawns, clear walkways, and clean windows.
Bring a trusted home inspector to look at the property. Have them inspect the roof, drywall, foundation, electrical, and plumbing. Every aspect of the construction should be up to code and legal. There's nothing wrong with buying a fixer upper if you have the funds. But, some renovations are harder and more expensive than others. Consider requesting some renovations as conditions to the sale.

5. Property Management Service

Some homeowners don't want to be landlords. Being a landlord means finding tenants, responding to complaints, and house maintenance. You could get contacted 24 hours a day with a plumbing, electrical, or any other house emergency. Consider hiring a property management company like ours to handle all these things and more. You don't even need to live near your investment property if you hire a company. They can be onsite 24/7 and respond to every complaint. They're also in charge of keeping the landscaping maintained and routine fixes. Property management companies are also experienced in vetting the right tenants. They know the best way to write ads and market your property. This will help you get the best possible price for your rental.But, they also take a part of your income. Most companies take 10-20 percent of the homeowner's profit.

6. Insurance

The insurance for a rental property is different than the kind for your own home. Consider liability insurance and personal property insurance for your tenants. And, your area could affect the insurance types and costs. Places with lots of earthquakes, flooding, and sinkholes may have expensive insurance costs. These factors also threaten to damage the property and your tenant's belongings.

7. Return on Investment

If you don't make a profit, what's the point of buying an investment property? Even if you don't make a profit right away, you should have a detailed plan of when the profit will start flowing. A general rule property investors follow is the one percent rule. You should be making one percent of the initial cost of the property in profit each month. So, if you paid $100 000 for the house, you need to earn at least $1000 per month in profit. That's after the monthly expenses, taxes, and emergencies.If you buy a property that doesn't meet the one percent rule right away, that can be okay. Areas that are expecting a huge rise in house values and rent amounts can handle an initial slow period.

Ready to Buy Your First Investment Property?

Property investment is a lucrative business that could significantly increase your income. But, to do it successfully you need to buy the right property and find the right people to manage it. Follow the tips above to find a property that will make you money and be easy to manage. With Team Barnum, you can find the investment property and get it managed!

Topics: Investment Properties, Arizona Real Estate, Buying a Home

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