By Noah Brocious – President/RI/Mortgage Loan Originator – When you’re looking for a property to buy and hold, you want to ensure you’re investing in a home that will generate reliable income. This is especially important if you’re new to real estate investment.
Steps For Choosing an Investment Property
So how can you tell if a piece of property is the right choice? The key is patience and diligence. Don’t jump at the first home you see. Instead, make sure you follow this checklist before making an offer.
Consider the Risks
What risks does this property pose, and are they worth the reward? As an individual investor, you need to think realistically about what you’re willing to put on the line. Large firms can take large risks because they can absorb the costs if they fail; as an individual, your personal credit history and assets can be impacted by an unwise business decision. Before you take on the risk of an investment property, make sure you’re comfortable with the possibility of failure and have a plan to recoup your losses.
Choose Affordable Housing
In that same vein, it’s better to choose affordable housing, especially if you’re just starting out. While high-income mansions can be tempting, most people are looking for reasonable rent. You’ll have a better chance of finding long-term tenants if you opt for affordable housing.
This may mean changing the type of real estate you’re considering. In some areas, single-family homes don’t fall into the affordable category; instead, you may have to purchase a townhome or condo to accommodate the area’s housing needs.
Before you even start looking at real estate, you should know how much you’re willing to spend. This requires making a budget.
Remember that the cost of buying a house isn’t limited to the purchase price. You also have to cover the following expenses:
- Closing costs
- Agent fees (if you’ve hired a real estate agent)
When creating your budget, you also want to factor in unexpected fees such as minor repairs. This leeway reduces the financial strain if you come across surprise costs.
Fix, and flipping can be a profitable pursuit, but if you’re just starting out as a property investor, you may want to stick to something less complicated. Flipping a house involves not only purchasing the real estate but hiring a contractor to make renovations, some of which may be extensive. It’s a much bigger investment in terms of both time and money, which means a bigger risk. If you’ve never been a landlord before, you should stick to properties that are ready for move-in ready.
Analyze Local Rents
Before you purchase a property, you want an idea of the income it’ll generate. To determine this information, you need to look at the area’s average rent.
Compare the rent to the cost of purchasing the home. How long will it take to make back your investment? How much profit can you expect? Answering these questions will let you know whether the property is worth pursuing.
Can you charge more than the average rent? Yes, but you may have trouble finding tenants. Remember, potential renters are looking at this information as well and may decide to go with something cheaper, even if you’re offering more than other landlords.
Research Neighborhood Listings
Looking at the neighborhood listings will give a good idea of how long it’ll take to get renters. If the neighborhood has many vacancies, it may be more challenging to find tenants since you’re competing with other properties.
Additionally, if the neighborhood has listings that have been up for a while, it may not be a good place to invest. Long-term vacancies are a sign that the neighborhood doesn’t align with current market needs.
Research Nearby Amenities
What types of amenities are available in the neighborhood? Amenities are a great way to attract tenants, though different demographics will look for different options. For example, young workers may look for bars and gyms, while families may favor parks and recreation centers.
Ensure your property’s appeal aligns with the draw of nearby amenities. If there’s a shortage of amenities in the neighborhood, you may have better luck elsewhere.
Check Out Future Developments
If there are no amenities currently in the area, you may want to check future developments to determine if there are plans to add any. There may be plans for community centers and businesses in newer areas that just haven’t come to fruition yet. If these amenities are due to be built soon, it may be worth investing in the area.
You also want to be on the lookout for developments that may drive potential tenants away. Not everyone is keen on living next to an industrial zone, for example.
Look at the Job Market
Many people move to a new area because of work. Before you invest in a property, take a look at the job market to ensure it’ll work in your favor. If job offers are low in the area, you may have difficulty finding renters.
It’s also important to note that not everyone lives where they work. Commuting is a reality for many people, so look into how many people live in the neighborhood and work in a nearby municipality.
Study Crime Rates
Crime rates are another major factor to consider. Finding a safe place to live is often a top priority, so choosing a neighborhood with subpar crime rates can make it harder to find consistent renters. You should also research the crime rates of surrounding areas, as you can be sure tenants are doing the same.
Research Local Schools
If you hope to get a family into your property, it’s essential that you look at what the neighborhood offers in terms of schools. For parents, a good education is usually high on the checklist.
With this in mind, take a look at the K-12 offerings near your property; make sure you include private, charter, and public schools. Look over reviews and check information such as graduation rates to determine if their proximity to your property is an asset.
Look Into Property Taxes
Finally, make sure you know how much to expect in property taxes. This expense will cut into your profits, but high-tax areas aren’t necessarily a bad thing. Often, a high property tax signifies that an area is attractive. Just make sure the investment is worth the reward and keep in mind that this expense is likely to increase over the years.
Now that you’ve found a good prospect, it’s time to secure financing. One of the best options is hard money loans due to the many benefits they offer:
- Short terms
- Competitive interest rates
- Fast approval
While it’s possible to use a traditional loan from a bank or credit union, the laborious application process can put you at a disadvantage. In contrast, a hard money loan from a private lender provides quick cash that can give you the edge in a bidding war.
Contact Capital Fund 1 for Financing Your Loans in Lubbock, TX
As the premier investment property lenders in Lubbock, TX, Capital Fund 1 is proud to offer various financing options. Our quick pre-approval process means you can get funding in a minimum of 24 hours, allowing you to take full advantage of lucrative business opportunities.
Not sure which loan is right for you? Our friendly financial experts are ready to help. To learn more about our programs or to submit an application, contact us online or give us a call at (480) 889-6100.
Image Credit: Shutterstock/ Monster Ztudio