When you are looking for investment properties, things aren’t as simple as buying a residential property. The dynamics of these two are totally different. So, if you think you know everything about buying an investment property because you are a pro at buying residential properties, you are in for a surprise. Residential properties are homes that people acquire, they fall in love with it, and even when they don’t, they make it work one way or other.
Whereas investment properties are for income purpose, you know your livelihood depends on this. So, you must make sure everything is perfect; there is nothing amiss before you put it on the market. For example, with a residential property, the location can be compromised, but when it comes to investment properties, this is one of the many things that you simply can’t ignore. So we will not be exaggerating when we say that purchasing an investment property is completely the opposite of purchasing a residential property.
Why Is It Different?
Purchasing an investment property is different than purchasing any other type of property because you must perceive it from a different angle. The properties you seek and fall in love with may not get you the desired ROI. Moreover, you need to keep the cash flow in mind while shopping for an investment property. Similarly, the places that might not look much can earn you a hefty ROI. Here are several factors that will help you a lucrative property.
Significant factors to Consider:
The most crucial factor to consider when shopping for an investment property is the market. Adding the whole of the US in your market isn’t going to help you; in fact, it will only overwhelm you as every market is drastically different than the next. For example, the high growth market of San Diego is a good choice if you are pursuing to enter the career path of the investment property business.
Every market has its criteria as well as dynamics regarding properties; this one choice can make or break your investment plan. Choose your market first and then set out to understand the workings of that said market. Hire a professional to help you through with this process. If you aren’t going to live in the same area as your investment property, you should also think about hiring a contact to keep an eye on things in your absence.
A Turnkey is a brilliant idea for people who are investing from out of state. With a turnkey investment property, you don’t have to find a house, repair and renovate it and then market it to find renters. A turnkey property is a ready to invest in property. This is a property that has been prepared and marketed for renters. In many cases, a turnkey property is already rented and earning profits. You can get in touch with a turnkey provider to put your investment in a property that is ready to purchase, or even rented.
Such a property will start earning and give you ROI instantly. Also, with your turnkey provider acting as your property manager, you don’t even have to worry about being there in the midst of the operation. A turnkey provider is professional and has a selection of properties that are ready for renting. These properties are in prime locations, with bet marketing plans already set in motion.
The one thing that can make or break your investment property is the kind of neighborhood you choose. With residential, it’s only you and your family you need to consider, whether you feel good in a specific neighborhood or not, you only have your family to look after. However, with investment properties, you need to consider the kind of tenant you want to have in your property. Different types of neighborhood encourage different types of tenants.
Typically, neighborhoods are classified into three categories:
- This is the neighborhood that has affluent neighbors as in it houses the elite class. These are mostly in posh and high-end areas, where maintenance is high, and properties are immaculate. This neighborhood houses properties that not only new constructions but are comparatively more significant than average homes.
- These are older neighborhoods, but despite their age, they are well maintained. The houses here will be moderate in size, and this neighborhood will attract slightly lower-income tenants in the A category neighborhood. Comparatively, B category neighborhoods are more successful as they are most affordable.
- As you can guess by now that the C category is your low-income category. These neighborhoods need a bit of work; you will need a lot of reparation and renovation work if you are thinking to buy your investment property here. The rates are low here, and these are the most crowded neighborhoods that attract blue-collar tenants.
Most people might find it odd to think of selling a place before they have even bought it, but when it comes to investment properties, you need to have an exit plan in place before you also buy your property. This is a plan that will reap you fruit later when the property is old and will be in no condition to occupy tenants.
If you have appointed a turnkey provider or a property manager, it’s a good approach to sit and discuss your exit plan regarding the property. It doesn’t matter how great the property seems now, will it get you profit even when it’s old and done for?
The One Percent Decree:
Every smart and vigilant investor follows the one percent rule, and if you are one, you might want to think about it too. The one percent rule claims that any investment property should get you least one percent of its final purchase price in rent. For example, if a property is purchased for $200,000, you should get at least $2000/per month as rent if not more. To cap it all, these five rules should be your guide to be an investor and successfully buying an investment property.