Choosing a suitable real estate investment can be extremely difficult, especially if you’re new to the game. With so many options out there, it can be hard to figure out which ones will work best for you and your overall financial goals.
That said, in this article, you’ll learn six valuable tips to help guide you as you choose a real estate investment that will stand the test of time and allow you to succeed in the long run. Use this guide as a starting point as you make your way through this process.
1. Location
Location is crucial. You want a property in proximity to something of high traffic, such as offices, schools, colleges, hospitals, or even more than one of these things. Check out Google maps and see any traffic hot spots near your chosen area for investment. That will tell you whether it’s going to be worthwhile or not.
Choose a city that has a high population. Say you’re thinking of buying an apartment block or even just one house. In that case, you need to think about whether there will be enough people in your chosen city.
Purchasing a home in a big city can have the population that you’re looking for. If you want somewhere with regular occupancy, you’ll need a steady supply coming through. Another thing with cities: make sure there are plenty of schools and colleges close by. You don’t necessarily have to target them specifically. Still, they will help bring in rentals when kids grow up and start working. If you have children, it might be worth looking at locations to go to good primary schools.
2. Team
The success of your investment can hinge on whom you choose to buy and sell properties with. Look for experienced and successful partners, and do plenty of research into their track record. If they’re not bringing anything to the table, don’t let them in—you can run into serious trouble if their expertise is no good.
3. Appraisal
An appraisal is an estimate of your home’s worth, but it can be costly. Luckily, there are several ways you can get a rough estimate without paying for an appraisal. Check out Zillow and other online real estate sites, as they usually give reasonably accurate calculations based on similar homes in your area.
You can also hire a local realtor to give you an idea of what price range buyers are looking at in your neighborhood. Once you know that, decide if it makes sense to sell or rent out when considering renovations and repairs.
4. Market
This is probably one of your most important considerations, as it affects just about every other factor that goes into investing. A big market means high rents and good returns on your investment. Unpopular markets are more volatile but can give you growth opportunities. Learn about current trends in real estate so you can decide whether to invest in popular or unpopular areas.
Another useful metric is how long it’s been since the property last sold within a specific area. If nothing has changed since ten years ago, chances are there aren’t many new developments going up in these neighborhoods. Look for freshness if you want new construction and gentrification—or stick with older properties if they have established infrastructure.
5. Property Type
There are a lot of options out there for real estate investors. But with so many choices, it can be challenging to know which one is right for you. Different properties suit different investors’ needs, including single-family homes and small apartment buildings for those who want more significant investments. What kind of property do you want? The answer will determine how much risk you take on.
6. Capitalization Rate
Capitalization rate is one of the fundamental components in calculating net operating income. This is essentially a measure of how fast your investment will pay for itself.
If you own an apartment building and expect $3,000 per month in rent but your total monthly expenses are $2,500 per month, then your cap rate is 10 percent. It means it will take ten months for your initial investment of $100,000 to return the money with rents and vacancies factored in.
Although real estate is usually considered a long-term investment, you can still make money in it with short-term buys. If you have adequate time, you should be able to buy properties at below-market rates and fix them up quickly. This will give you plenty of time for your home value to appreciate. By following these six tips for choosing real estate investments, you’ll be able to find deals that turn into successful investments over time.
