How to Choose an Investment Property You’ll Love
For some landlords, once they rent their old primary property, they’re bitten by the real estate bug. A steady stream of income from a solid property can make investing seem much more inviting. For the right investor and landlord, adding more properties can be a smart choice. You set yourself up for future financial freedom while growing your income and building a business.
Since this is the month of love, let’s focus on finding an investment property you’ll love. Getting this part right is the first step to the kind of future you want for yourself and your family.
Know the Market
Talk to a property manager or a real estate professional and learn all about the market you want to invest in. This is important for any investor, even if you’ve had a successful rental property over the past several years. You need to know what’s going on in the local economy. Are jobs coming to the area or leaving? How are rental and property values doing? Is the rental market strong?
If you’ve had the same solid tenant for the past several years and haven’t had to think about marketing a property in a while, do not buy anything until you have this information. It’ll help you figure out if now is the time to make a purchase and where your money is best spent.
Figure Out Your Budget -- and Stick With It
How much money can you afford to invest and how will you pay for it? The amount you spend to buy isn’t the only consideration. You also need to think about how much you’ll need to spend to get a property ready to rent and maintain it once you find a tenant.
Not having a budget or blowing your budget out of the water will lead only to stress and wishing you’d never bought the property in the first place. It’s hard to love something that’s draining you dry and commanding all your attention, time, and money. Buy within your means and make sure you can afford the work that’s needed.
Picture Your Ideal Renter
Knowing who you want to rent to, and how much they can afford to spend, will help you in your property search. You don’t want to buy in a neighborhood that your ideal renter would never live in. At the same time, picking the right location is only half the battle. You also need a property that ideal renter wants to rent.
A neighborhood filled with retirees isn’t a good fit for a young couple. Condos on the beach aren’t a good fit for a small family. There’s no right answer on who your ideal renter will be but there is a right property for them. Choose carefully.
Get Real About Your Expenses
This is no different than sticking to a budget when you buy. Stay realistic about the expenses you’re incurring when you take on the investment property and factor it into your budget and the rent you want. If you’re not prepared for how much the property costs, you’ll spend all your time chasing the right amount of rent and the renter who can afford to pay it.
Some expenses to keep in mind include:
● Mortgage, if applicable
● Maintenance costs
● Big repairs - roof, HVAC, etc.
● HOA/COA, if applicable
● Property management fees, if applicable
The rent you charge should cover these and still bring in at least some extra cash. It might not be much at first but the potential for an increased cash flow ought to be there from the beginning.
Consider Other Areas to Invest
Maybe you’ve always owned single family properties in Niceville or Fort Walton Beach. Have you ever considered condos in Destin or South Walton? Branching out of your home territory allows you to diversify. If you’re really feeling brave, you can even branch out into another state or a part of Florida with a different economy.
Whether you stick close to home or not, investing in different properties has its advantages.
● Different properties command different rent.
● Marketing to another market (retirees or vacationers vs. young families) provides extra opportunity for growth.
● You’re more protected if a segment of the real estate or rental market falter for any amount of time.
Think About Resale
If you know there’s a possibility you’ll sell your rentals in the future, buy with that in mind. It’s impossible to know what the real estate market will do in five or ten years, obviously. But buying an overpriced property now with a too-big mortgage never ends well. Likewise, having to put more money into a property than you’ll ever get out of it on resale might not be the best idea, either - depending on how long and at what rate you rent it out.
Ultimately, you don’t want to look up one day and realize you resent your own investment property. Of course being a landlord takes time and money but no one wants to feel like the life is being sucked out of them. A rental that’s not a good fit can become The Money Pit in no time. Take your time choosing your investment properties so you have a better chance of success and your love can grow over time instead of fade.
If you’re in the market for new rental properties or you need help managing your existing rentals, ERA American Real Estate is here to help. We know the market better than anyone, and we can help you navigate the life of a landlord to get the best tenants and maximize your cash flow. Contact us today.