Buying investment property can be a big project, and one that does have some risks if you choose the wrong property to purchase. Knowing what features are important can help reduce your risk, and help you ensure some financial success with your investment.
Condition of the Property
You can almost certainly get a good price on a property when it needs some work, but your profit margin is going to disappear if you have to spend a fortune to get the place livable. Small things can be fixed, major things (cracked foundation, for example) may be a disaster to deal with.
If you are handy, or know people who are, your standards reasonable fix-ups are going to be different. A little DIY can really improve a property without much expense on your part. Otherwise, you have to factor in the added costs of hiring professionals.
Even if the property is solid, the appearance can make a difference. Potential tenants may be turned off by poor curb appeal, just like a home buyer would. Give the exterior a paint-job or add some palliside cladding if necessary.
The old saying about the 3 most important factors of real estate being “location, location and location” is really very true. Are the houses in the nearby area in good repair? Are there public services within walking distance, like medical facilities, schools, grocery stores or bus routes? You definitely want to look beyond your actual property borders to see what area you are investing in. Some people may not care about bus routes, but you will alienate a whole range of carless tenants if there are no buses within walking distance.
How much you will be paying in taxes will reduce your profit, so research the area and check out the tax rolls before buying. Remember that taxes can be a way to gauge the value of the property and area, but it’s not fool-proof. What matters is whether you can still make a nice profit when you consider the tax expenses compared to the rent you plan on charging.
And if you are doing a lot of improvements to the house, there may be an increase in taxes in your future. The rates you see right now aren’t set in stone.
The home or apartment building itself is only part of the issue. What else is included that can help you ask for higher rent, or to simply attract more tenants? Parking is a big plus, especially if you are renting larger properties that are likely to draw in families with kids. Buildings with multiple apartments will do better if there are laundry facilities, or additional storage units. What about an elevator for multi-story buildings?
To be clear, this is a discussion about investment properties that are purchased with the intention of being rented out for income. If you are thinking about an investment property more as a sellable asset (like buying and flipping a house), that’s another discussion altogether, though many of these points will still apply.