You might have heard before that property is your best investment, but there is not always a lot of information out there - Buying an investment property is a significant financial decision, and there are several factors to consider to ensure that you make a sound investment. Here are some key things to look out for:
Location:
The phrase: "Location, location, location" is not just a cliché or just something everyone says, it is literally the most important factor when looking to buy a property - whether it is for yourself or for investment, this is the one thing you have to get right. When it comes to buying as an investment, proximity to amenities, schools, public transportation, and shopping centers can affect the property's appeal to potential tenants. Consider the neighborhood's overall safety and future development plans also to be able to know that it will also have a good resale value.
Market Trends:
Research the current real estate market in the area. Look for trends in property values, rental rates, and overall market stability. Don't buy at a too-high price when the market is high. Know and study the neighbourhood that you are planning to buy in and know how much property prices are. Do your homework thoroughly.
Property Condition:
Assess the overall condition of the property. Factor in potential renovation or repair costs. Get a professional inspection to identify any hidden issues that might be costly to fix. The ideal property is to get a home that is move-in ready or at least in a condition that requires only minor changes before renting it out. The more time you spend fixing it up, the longer you have to wait for tenants to move in and you generating a rental income.
Rental Potential:
Analyze the rental demand in the area. A property in a high-demand rental market is more likely to provide a steady income stream. Consider the type of tenants the property is likely to attract and whether it meets their needs.
Cash Flow:
Calculate potential cash flow by estimating rental income and deducting all expenses, including mortgage, property taxes, insurance, maintenance, and property management fees. Ensure that the property generates positive cash flow.
Financing Options:
Explore different financing options and interest rates. A lower interest rate can significantly impact your overall return on investment.
Future Growth and Development:
This goes along with selecting the right location. Investigate the local area for any planned developments or infrastructure projects. Positive changes in the neighborhood can contribute to the property's appreciation.
Property Management:
Consider whether you will manage the property yourself or hire a property management company. Factor in the costs and time associated with either option.
Regulations and Zoning:
Be aware of local zoning laws and regulations that could affect the property's use and potential for future development.
Tax Implications:
Understand the tax implications of owning an investment property. This includes property taxes, deductions, and potential capital gains taxes when selling.
Exit Strategy:
Have a clear exit strategy. Consider how long you plan to hold the property and under what conditions you would sell.
These are just a few things to consider when looking to buy a home for investment purposes. It is also a very good idea to consult with an agent who really is your neighborhood expert and who would use their expertise to guide you towards the right property.