Buying Investment Property? Don’t Make an Offer Before Considering This
Finding a property that would make a great investment property can be an exciting time. It’s easy to get swept away in the excitement and make a decision that ends up not being as profitable as you thought it would be.
When you are just starting out investing in real estate, it is crucial that each deal you make is a good one. Make sure you think about these 4 things before purchasing an investment property.
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What is your exit?
There are two strategies when it comes to investing in real estate: purchasing a house to fix and flip, or purchasing a rental property. The plans on how to handle the property and what type of property you should be looking for are different based on which type of investment you want to make.
Knowing what type of investment you want to buy lets you know what your exit strategy is going to be. You need to begin with the end in mind, or else you might end up throwing your money away.
- What is the plan?
Before closing on a property you should have a well formulated plan ready. If you are going to be doing work on the house, you need to know what work you are having done, what order it will be done in, and what budget you have for the project.
Make sure your plan is realistic. If your plan includes remodeling a 3,000 sq ft house from top to bottom in 2 weeks, it probably isn’t realistic. Creating an unrealistic plan leads to an unrealistic budget when you have extra carrying costs that you weren’t planning on spending.
- Can you use your plan in the current market?
Some houses are better than others when it comes to real estate investing. If you are planning on renting the property, you need to look into what the current market will support for monthly rent. Look into the trends in the industry to see what the market is projected to do in the future.
Find out what the demographics are of the area that you are looking at investing in. If the neighborhood has a lot of foreclosed homes, it might be hard to put tenants in the house because they will be looking for a more up and coming neighborhood.
If you are looking at flipping a house, make sure that you are not investing too much money into it. When the comps don’t support the amount of money you are investing, you may end up sitting on it and paying the carrying costs month after month, or losing money on the sale.
- Who is your target market?
When you are rehabbing your property think about your target market. If the house is located within walking distance to a school, it is likely that a family with school aged children will want to buy or rent the property. Keep this in mind as you choose how to renovate the property. Think about the features that these families will be looking for.
The real estate market can be a lucrative investment if you do it the right way. But if you aren’t careful, you can continue to sink money into a property that is never going to payoff for you in the end. The more planning you do, the better chance you have of making a great investment.