When purchasing an investment property, the location of the home should be analyzed and considered before making a decision. Similar to real estate prices, rent rates are impacted by the location of the home. People are willing to pay more or less based on where the property is located. The major items to consider in terms of location are schools, taxes, the neighborhood, and crime rates. All of these topics are important for both the value of the property and to potential tenants. A good school district will make a rental property more desirable to tenants, and therefore potentially bring in additional revenue. Property taxes can vary greatly from one area to another, so it is important to check the tax rates for each specific property. A lower property tax rate means that the owner will pay less in taxes, and therefore get to keep more of the income they are bringing in from the home. The neighborhood in which the property is located can inform a potential buyer of the types of tenants the property might attract. If a home is located across the street from an elementary school, then it is likely to attract families with young children. The more information an investor can gain about a property and how it will perform as a rental, the better decision they will be able to make. Crime rates should also be considered when considering an investment property. Both the owner of the home and the tenants value safety and security.
Investment properties are bought with the intention of them being profitable for the investor. One way to help this goal come to fruition is to predict cash flow and growth potential for a potential investment property. The ability to keep the property consistently rented and the amount of rent that can be charged are both important factors when predicting cash flow. A good investment property needs to be desirable enough to regularly have tenants in place that are willing to pay the market price of rent. Once it has been determined what the cash flow for the property most likely will be, the investor needs to make sure that the cash flow covers any mortgage payments and bills. The income from the property needs to at least cover the expenses from owning and maintaining the property. Another important factor to consider is the growth potential of a property. An investor needs to look at trends in the neighborhood, community, and local real estate market to determine how real estate values and rent prices will trend in the future. It is important to research if an investment will hold its value moving into the future.
The condition of the property can affect the desirability of a rental property and the amount of upkeep that will be required by the owner. When considering a property, it is important to assess the current condition of the home and how much renovating and maintenance it will require. Many new investors are easily scared off by cosmetic flaws or needed repairs. Many properties are great values that would work well as an investment property but will need some renovations before they can be rented out. When looking at a property that needs repairs, it is important to determine if it will be strictly cosmetic or involve deeper issues. If they involve deeper issues such as the foundation or electrical wiring, the cost to fix these problems needs to be assessed by an expert. Cosmetic fixes need to also be assessed, but they are usually much less costly and can be easily estimated by the investor. Once the investor has estimates for repairs, they can make an informed decision based on the costs and the amount of revenue the property will provide.