Buying Your Next Great Investment Property

Whether it's early on or down the road of your property management career, at some point you may start looking to expand the number of properties you hold. When buying a property, how can you be sure that you're selecting the best investment possible?

Demographics, Neighborhoods and Potential Renters

As you consider new properties it's a good idea to look at potential renters in the area. Some neighborhoods may cater more to students, for instance, while others may see more singles, or families with children. Planning to rent to each of these demographics has pros and cons. Each property manager will likely make different choices depending on how quickly you're hoping to receiving a return on your investment, how much money you're planning to make, and how much time you're willing to invest. For instance, you'll never have a shortage of potential student renters if you purchase a property in a college town, but students move out quickly. You also won't be able to charge higher prices without alienating them, and students are often considered to be “rougher” on properties than other demographics.

Do your homework on how demographics are changing in the area. Just because a property's neighborhood has certain characteristics right now doesn't mean it will always be the same. Consider what trends in property values look like. Is a given neighborhood showing a sudden, dramatic tendency toward gentrification? Just because you hope to have certain renters who are currently a part of the neighborhood doesn't mean that this will always be the case.

Changing property values in particular mean that a landlord or a property manager can see a remarkable return on investment, sometimes in a short amount of time. A property that once only rented for a smaller sum of money could suddenly go for much more. If you suspect that a neighborhood's property values are going to increase, it may be a good idea to buy property in that location sooner rather than later.

Repairs and Amenities

Once you have a general sense of where the property should be, and have thought about prospective tenants, consider individual properties. Look carefully at appraisers' reports. Be sure to research just as carefully as you would if you were buying your own home, and keep an eye out for potential problem areas. When was the roof last replaced? Are the plumbing, hot water heater, and wiring all up to snuff? Is there any repair work that needs to be done before the property is rentable? Also be sure to think about amenities that could make a property more attractive to tenants. Is there on-site laundry? How about a dishwasher, a bathtub, or parking?

Don't let the prospect of spending money on a new property scare you off. You're making an investment, remember? Dumping too much money into a property at the start may not be worth it, particularly if you're just starting out in the property management business. But repairing a property or replacing anything dodgy can mean avoiding even heftier repair costs in the future, and spending money on amenities results in a property that will be more attractive to potential renters. This often means that you can charge more for rent, and the amenities you paid for wind up paying for themselves.

Buying a property can be a gamble, but keeping these tips in mind will ensure that you have your bases covered.


Posted on Nov 25, 2014


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