6 Desirable Investment Property Attributes
If you want to improve your standard of living by becoming a property mogul and investing your hard-earned capital into income-producing properties, there are some general investment property guidelines that you should follow. These guidelines don’t necessarily promise success, but they should significantly increase your chances of earning wealth.
One of the best ways to improve your wealth is to reduce your risk on the properties you purchase. By investing in lower-risk real estate, you should be able to accumulate a fair amount of wealth over time.
The following six attributes are all desirable when it comes to uncovering and buying an investment property.
Good Condition
Perhaps it’s due to the proliferation of reality TV programming that many investors buy fixer-uppers and think they will add value by doing a renovation. It’s a noble goal and it can work, but often, investors find that the necessary repairs are far more costly and time consuming than they were anticipating.
The problem here is that pouring more money into the investment property equates to lower investment returns and less wealth building. Skip fixer-upper properties and buy homes that are in good shape. This should help get rental checks flowing to your bank account in as little time as possible.
Moderately Priced Areas
You probably already know that real estate is all about location, location, location, but what you might not know is that properties in the best locations – waterfront, downtown areas and wealthy enclaves – generally have very negative cash flows. Instead of optioning for an investment property in one of the wealthiest locations, opt for a moderately priced property in a working-class area. These tend to have boring locations, but they also have much better positive cash flows.
Before making an offer on an investment property, be sure to use conservative estimates for rents and expenses and go for beginning year cash on cash return of at least 4 to 6%.
Financially, Legally and Operationally Sound Homeowners Associations
There are many potential issues when buying properties in common interest developments; you aren’t just buying your property, you’re buying into a larger entity known as the homeowner’s association (HOA). If the HOA you buy into is in financial, legal or operational trouble, you end up paying the bills. Doing your due diligence on this is a lot of work, but it’s necessary to make wise financial investments.
Quality Tenants in Place
Buying a property with a quality tenant already in place has some major benefits. First, you get the security deposit and prorated rent, and you save yourself the time and hassle of going into to clean, paint, update or repair too many items in the unit. If you buy properties in areas that have decent credit quality tenants, there is a good chance that is the type of tenant you will inherit. Be sure to take a look at the current tenant’s lease, credit application and credit report if you can prior to purchasing the property.
Low-Vacancy Areas
Vacant units have a tendency to get robbed, vandalized and don’t bring in any rent to cover the bills. Buying in high-vacancy areas could result in you losing months or years worth of rent at a fair rental rate. Be sure to thoroughly think about buying properties in areas with a lot of unoccupied units. A good tip is to drive around the area at dinnertime and look for homes with lighting. No lights in a lot of neighborhood houses is a good indication that nobody is living there, and that you probably shouldn’t either.
Long-Term Investment
The most important consideration in real estate investment property is to own it for a long time – as in forever is the optimal ownership goal. Be sure to always do your due diligence and invest in quality properties that you really like, that you like for all the right reasons and that you plan on owning for good.
Real estate investing is full of unknowns and potential risks, but there are ways that you can increase your chances of success. Buying properties with all of the above attributes will greatly increase your ability to add wealth to your nest egg from real estate ownership. Acquire as many properties as possible that fit this list, and pass on the ones that don’t stack up.