How to Choose an Investment Property
/Whether you’re just starting out buying an investment property or looking to add to a growing portfolio, there are some important questions to answer and steps to take before making your decision. I’d like to discuss some of those today.
Assess Your Finances
Whenever I start out with a buyer looking to purchase a property I have them speak to a lender or their financial adviser about what they can afford. It is always the best first step. If you know what you can afford, when you start your search you will know exactly what price range in which to look. You will also know what you will be paying monthly (if you are taking out a loan) so you will know what rent amounts will make the purchase worthwhile.
What Type of Renter Do you Want?
At face value this seems like a problematic question, though it really is an important one. I’m not asking you to profile your prospective tenants in a way that is against basic rights and laws. This is looking into if you want long or short term tenants, tenants in established careers or college students, and the like. Answering this questions answers a myriad of others like location, type of property,, etc.
For example, if you buy a single family home in the suburbs you are likely to rent to a family or established couple that wants the quiet of the neighborhood, the luxury of a backyard, and often times the stability of a long term lease. If you choose a condo in the heart of downtown, you could be looking at professionals in town for contract work, people who like the ability to walk everywhere, or even short term nightly rentals. A triplex two blocks for the local university gives the options of renting to possible students or professors, renting by room, etc.
There are so many different properties out there. It’s important to take the time to decide which type you want. They all come with their own set of work.
Do You Want A Fixer Upper?
Often if you buy a distressed property or one that is in need of work you can get it at a lower price. This often very attractive to investors. Before you buy something that needs work, make sure you have the capital to do that work. Also, can the property be occupied before the work is done? Can the work be done while it’s occupied? If you are buying a property with multiple units, you may be able to rent out all the units but one and work on them one at a time. That way you still have some income coming in while doing the work.
What are the Rents vs Expenses
I get lots of questions about what the rents are on prospective properties. And that is a very important question. On the flip side of that, it is equally important to know what the costs are for the property. Who is responsible for the utilities and, if it’s the landlord, how much are they? What is the cost to maintain the landscaping and snow removal? Are there HOA fees and who pays for them? Will you manage the property yourself or pay a management company a portion of your rents to do it? A good idea of expenses gives you the ability to make an educated decision on whether the property is a good fit.
Going through these questions as you search for an investment property will help you find one that will bring in the income you need and avoid the ones that won’t. It will inform the offers you make, the rents you require, and how you manage the property.
Give me a call and we’ll start your search!