What to Look for in an Investment Property
A great aspect of real estate investing is there are so many different ways to invest. You need to ask yourself these questions:
What are your goals?
What part of real estate investing interests you?
Does your personality or background favor a type of real estate like construction management, financing, or acquisitions?
Are you looking for cash flow, appreciation, a quick small profit, or a large profit in a few months?
Do you prefer Residential, Commercial, Multi-family, Development?
There are a lot of choices and a lot to learn. That is why it is recommended to learn as much as you can and focus on one or two types of investing.
No matter what type of real estate investing keep in mind these things when evaluating a property.
1) Location:
I am sure you have heard the saying, "location, location, location". This is the most important aspect. Factors such as good schools, traffic, restaurants, and entertainment determine good locations. Properties in really great locations are typically most expensive. So finding a good deal in a great location can be difficult. Farming areas that will be the next great location is a great way to find deals that can be more affordable yet desirable.
The surrounding location of the property is also important. Properties close to train tracks, flood plains, or landfills will affect the value.
2) Stick to the numbers:
With investing you have to run the numbers and have the discipline to not go against your calculations. Otherwise, you will not meet your goals. For example, if you want a 10% annual return, do not buy a property that has a 9% return on paper just to get the deal. Move on and find something else. If you have the discipline to move on, sometimes the seller comes back later and takes your offer. You have to keep emotion out of it. For residential, you have to remember the home is not going to be your personal residence. Although if you make some poor decisions you might end up living there out of necessity.
3) Maintenance/Management:
Maintenance and management take time and money. Properties with lower maintenance might cost more upfront but will free up your time and resources to find other deals. With more maintenance and management the potential return on your investment should be higher.
4) Appreciation:
Appreciation is determined when you purchase and when you sell. When you buy you can affect the appreciation by making improvements. The value is affected by time and the market conditions at the time you sell. Is it considered a buyer's market or a seller's market? Appreciation is also affected by location as discussed earlier. Before purchasing find out the current zoning, what that allows, and if there is any potential for changes from local officials. Contact the neighborhood council person and get their feedback for growth and new developments.
5) Appeal to the Masses:
To succeed you need to play the percentages. In a residential neighborhood if the homes that have sold the quickest for the highest price have 3 bedrooms and 2 baths, would it make sense to buy a 2 bedroom, 1 bath home if you planned to rehab and sell it?
For interior design of homes, look and see what others are doing and what is popular with that type of buyer. If you are leasing a commercial retail space, lease to a business that will appeal to the masses so they succeed and pay the rent. In multi-family investing evaluate the unit mix of the property. Unit mix is simply the different number of bedroom apartments in a property.
Doing this may not be exciting, but it will lead to success.
In summary, there are a lot of choices and decisions that have to be made while investing. Do not be afraid of exploring other avenues once you have some experience. Keep these basics in mind and you will succeed in any type of real estate.