3 Hot Tips For Investing In Rental Properties
Choosing the right investment property, especially for a newbie investor, can sometimes seem to be a daunting task. But choosing the right investment property can also be a challenge for seasoned investors. There are three things I look for when choosing an investment property: long term growth potential, tenant “attractability”, and cost of ownership.
Long-Term Growth Potential
Most investors are taught that the cheaper the property, the better. This is only partially true. Your main focus for every long-term rental property should be appreciation, or the amount the property will increase over time. Appreciation is much more important than purchase price. The amount the property increases over time should be substantially more than any profits made from the buy. Because appreciation is much more important than purchase price, there are great potential investment properties in every market. So to sum this up in one short phrase, never buy an investment property without being confident that it will appreciate substantially.
The type of home you purchase will attract a particular type of tenant. Upscale properties attract upscale tenants, and vice versa. It seems like common sense, but it is an absolute must when looking for the right investment property. You want to avoid properties that attract potential tenants who have financial distress or appear desperate. Invest in the properties that fit into your budget, but that also will attract the best possible tenants.
Cost of Ownership
There is ALWAYS a cost of ownership. As with anything you purchase, your property will endure wear and tear over time. The more upfront homework you do will have a great effect on just how much wear and tear your property endures. Choosing the right tenant, for example, will have an affect on wear and tear. The design of the interior of the house will also determine how much your cost of ownership will be affected. Tight, narrow layouts will suffer more damage than open layouts, for example. Tenants with children will typically cause more wear and tear to the property than those without. Also, flat paints needs more care than gloss or semi-gloss. Many things on the interior and exterior of a home have a predictable shelf-life. Do your homework and calculate these things upfront and it will save you tenfold on the back.
Understand that long term growth potential, cost of ownership, and tenant “attractability” will greatly affect the success of your rental portfolio. These three factors should be considered carefully before investing in any real estate property.