Buying investment properties is no doubt one of the best and safest ways to make money in the current business world. However, this doesn’t mean that you can buy just ANY real estate property and expect to gain positive cash flow and high return on investment. You have to conduct research carefully and diligently before you become the proud owner of a successful real estate investing business.
To help you along the way, we have put together a list of the top 7 tips to have in mind when researching investment properties to assure that you make money rather than lose money in real estate. Let’s have a look at them.
Tip #1: Explore the Location
Since you have started thinking about becoming a real estate investor, you might have heard the phrase “location location location” one too many times… right? Real estate experts keep repeating endlessly that location is the most important factor when buying an investment property, and this is absolutely right. Location will determine many aspects of the success of your rental property (rental demand, rental supply, type of tenants, rental income, rental expenses, cash flow, occupancy rate, cap rate, cash on cash return, etc.), and it cannot be changed.
When researching investment properties options, you should familiarize yourself not only with the city but also with the neighborhood you are thinking about. Check out the economic situation, local businesses, shopping options, amenities, access to transportation, entertainment sources, crime rate, etc. All these factors will have a major effect on the success (or failure) of your real estate investment.
Go for lively but safe locations with high rental demand from trustworthy tenants such as small families and professionals.
Moreover, as a real estate investor looking for the best and most profitable investment properties, you should investigate not only the current state of your location but also the planned future developments. While property investors make money in the short term from rental income by renting out their income properties, they make money in the long term through appreciation. Thus, you have to make sure that the area is about to undergo some economic, infrastructure, or other developments which will push the prices of real estate up.
Tip #2: Conduct Real Estate Market Analysis
One of the most important steps of researching investment properties is to perform real estate market analysis, also known as comparative market analysis. You have to learn as much as possible about the overall state of the real estate sector and the rental business in your location of choice before you can decide to invest your money in a property there.
Study the property supply and demand to learn about property price trends in the area. Make sure the average property prices are within your budget as a real estate investor. This will help you secure a safe and profitable method of financing for buying a rental property without risking a default on your mortgage payments.
Pay particular attention to the rental demand and rental supply. You want to make sure that tenants are looking for housing options within the real estate market of your choice. Check out the rent rates to make sure that the rental income will be enough to cover your mortgage payments, insurance, property tax, and all other costs related to owning and renting out an investment property while leaving you with positive cash flow and good return on investment at the end of each month.
No matter how experienced you are as a real estate investor, never base your investment decisions on your guts only, and always conduct real estate market analysis when researching investment properties options.
Tip #3: Use Real Estate Comps
Real estate comparables, or real estate comps, are properties which are similar to the one you are considering buying as an investment and which have been recently sold or are still on the market. Before buying a rental property, it is crucially important to find at least 3-5 real estate comps. This will help you, first, assure that you are paying the right price for your investment property and, second, set your rent rate when you start renting out your income property.
Remember, real estate investing is a business, and as such, you should base all your decisions on solid numbers, not on your guts and feels.
Tip #4: Perform Investment Property Analysis
Once you have narrowed down your choice to a few potential real estate properties for sale, it is time to move forward with investment property analysis. This is an in-depth analysis of the properties to guarantee that you will be able to make money from them. Before you can buy an investment property and start renting it out, you have to know what you are getting yourself into.
Study the investment properties themselves, all their features such as the number of bedrooms and bathrooms, the number of floors, the overall condition of the property, the extras which you are getting (such as a swimming pool, a fireplace, a garage, etc.)…
Then move to analyzing the expected return on investment. Make sure that your rental income will exceed your rental expenses so that you end up with positive cash flow and with good cap rate and cash on cash return. After all, you want to be making money, not losing money, from your investment properties.
Tip #5: Buy a Rental Property Calculator
We know that it’s all starting to sound like a lot for one person to do. However, researching investment properties doesn’t have to be hard and overly time-consuming. We live in the 21st century and should thus make use of all the wonderful technology available around.
The rental property calculator, like Mashvisor’s, has turned into the best friend of any real estate investor, and especially the one looking to buy profitable investment properties without wasting his/her time and effort unnecessarily. Time is money, right?
Basically, a rental property calculator is one of the must-have real estate investment tools which will make all the calculations for you and provide you with ready answers to questions such as:
- How much rental income would I get from this property?
- How much will my monthly or yearly rental expenses be?
- What will my return on investment be like?
- What will my cap rate be for traditional and Airbnb rentals?
- How much cash on cash return will I get with traditional and Airbnb rental properties?
- What Airbnb occupancy rate can I expect?
- What is the optimal rental strategy for this income property?
Just imagine how much time you will need to conduct real estate market analysis and investment property analysis on a few potential real estate properties for sale, especially if you are a part-time real estate investor. Weeks? Months? Maybe even a year? And by the time you are ready to buy, your best investment property will be long gone, snatched by a real estate investor who used the rental property calculator.
Don’t let that happen and sign up for a 14-day free trial with Mashvisor, the best rental property calculator in town, to start buying the best investment properties across the US today.
Tip #6: Use Real Estate Predictive Analytics
While we might all agree that investment decisions should be based on solid numbers and data, it is important to highlight the importance of using not only traditional but also predictive analytics when researching investment properties. Traditional analytics belong to the past as they show you why an investment property behaves in the way it does based on facts from the past. Meanwhile, predictive analytics gives you accurate and reliable estimates of how an investment property will behave in the future based on trends and forecasts.
A rental property calculator uses predictive analytics thanks to the built-in algorithms, so you won’t have to worry about gathering big data and running mathematical equations on your own. Mashvisor’s investment property calculator has you covered.
Tip #7: Work With a Real Estate Agent
Unless you are a very experienced full-time real estate investor, chances are you will never have as much knowledge and experience as a real estate agent. After all, agents are real estate professionals who devote all their time to studying the market, working with property buyers and property sellers, and analyzing properties for sale. Thus, working with an experienced real estate agent when researching investment properties is highly recommended, i.e., if you want to make money from your future real estate investment.
To find the best real estate agents in your local housing market, click here.
Researching investment properties before buying one has never been as demanding as now. The real estate investing world has become incredibly competitive, which means that investors who want to succeed have to spare no efforts when searching for the best properties for sale. Doing diligent research and conducting all analyses is incredibly important if you want to succeed on the path of becoming a rich real estate investor. Thankfully, you have technology on your side, so make good use of it when researching investment properties. The best real estate investments in town are awaiting you!