What does it mean to be a property investor? If you have real estate property that you purchase, not to live in, but to make a profit on through rental income, appreciation, or capital gains, you're a property investor. And experienced, successful property investors tend to keep certain things in mind when investing in properties. Following are some that we thought might be particularly helpful.
Find the right location. As with buying a home to live in, location is one of the most important considerations when searching for an investment property. Put simply, you can always renovate the interior or exterior of the home or plant some new grass and flowers in the yard, but you can't change the location of the land.
So what do you look for in a location for your investment property? Look for a location that's convenient to things that people do on a regular basis. Grocery stores, shopping centers, banks, parks, schools, etc., are all great things to have nearby. Investing in property near office complexes can also be great for business professionals who want to live close to work. Is the property near public transportation, such as a train line? Any interstates or major highways nearby?
Consider the surroundings carefully when purchasing property you plan to rent. If there's a great elementary school down the street, you may be better off investing in a larger family home, rather than investing in a one-bedroom condominium. If you live near a senior center and you've done your research to find that there are a lot of seniors living in the neighborhood, try to find a first-floor condo or a single-story house with a low- or no-maintenance yard.
Finally, how is the economy of the area in general? Is it on the rise or decline? Obviously, the former makes for a much better investment opportunity.
Plan for renovations. If you're renovating, which is often the case with investment homes, think about the kind of people who will be most interested in the property, based on location and property features, and plan your renovations accordingly. For example, if the property is near a college campus, you might want to invest in more durable, stain-resistant carpeting or hardwood floors and skip upgrading laminate countertops to more expensive surfaces, such as granite. And definitely do some research to find out the average cost of any anticipated repairs.
Know your renters. Research the area to find out how successful other investors are in renting properties. Are there a lot of vacant rental properties, and how long have they been vacant? For the properties that are rented, how much rent are the owners collecting? How does the average rental income work with your budget? Would it allow you to still make money on the property?
Cover your bases. Before you invest in any property, have it inspected by a licensed professional. Make sure the inspector checks the condition of the exterior (foundation, roof, etc.) as well as the interior (electrical, plumbing, HVAC, etc.). If you're buying a property with a yard, have a professional also check the grounds for things like potential flooding issues or potentially problematic trees.
Plan for the long-run. To buy a home and sell it for a profit, you may need to own the home for a while until the home appreciates. There are also tax benefits to holding on to a property for at least a year. The best thing to do is to see an accountant or financial planner. A financial expert can help you make sure this investment is a wise decision for you and your family long-term. They can often help explain the best approach for optimal tax benefits (how long to keep the property, what you can deduct, etc.) and give you advice on the type of loan that is best for your economic situation.
Be an informed negotiator. Many people dread negotiating on the price of anything, and it can be particularly stressful when it's a big-ticket item like a home. However, making sure you're properly informed of the current housing market situation, what other homes are going for in the area, etc. may help alleviate some of your apprehensions about negotiating. Also, know what your spending limit is going into the deal, and stick to your guns. Remember that it is extremely common for sellers to jack up the price in anticipation of you coming back with a lower figure. Negotiating is an expected part of the process of buying and selling real estate.
Talk to a buyer's agent. This is especially important if you're new to property investment. A realtor can educate you on the housing market, the current economy of the area, the expected growth or decline of the area, etc. He or she may also be able to give you insight into what renters are looking for in a home, what home improvements and upgrades are good for resale value, and more.
Look for Real Estate Owned (REO) properties.These lender or bank owned properties are homes that were foreclosed on due to loan defaults. Some foreclosures sell at auction, but when they don't, they go back into the hands of the original bank or other type of lender and become REO homes. Because banks aren't in the business of maintaining homes and don't want their money tied up in these homes, they are eager to sell REO properties. Banks often reduce the price and omit or reduce legal fees, taxes, etc., making these properties a great deal for investors. You can find some great deals on REO properties, and the FHA offers great loans to qualified aplicants that can often include the cost of repairs.
When looking for REO homes, look no further than GoHoming.com, an where there are thousands of properties and easy-to-use search tools to help you find and bid on the right investment property for you. If you'd like to learn more about foreclosures and REO properties or our online bidding process, browse through our Resource Center.
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