Let’s admit it. Being a real estate investor is a really exciting business endeavor. Not only you get to be your own boss and manager, but you also get a chance to make money, lots of money, in the short term and the long term if you plan and execute your real estate investment strategies right. “But what’s the most important task of being a real estate investor?”, you may ask. The answer is easy: Buying an investment property. The moment you buy a real estate property you become a real estate investor. However, buying an investment property might not be as easy as it sounds, as you have to take many different factors and aspects into consideration. Thus, in order to help any new real estate investors start out and to solidify the knowledge of experienced real estate investors, here we offer you a list of the things you should keep in mind when looking at an investment property for sale and thinking whether that’s the right rental property for you.
What to look at in an investment property for sale: The location
Whether new real estate investors or experienced real estate investors, we all have to know that location is the number one factor determining whether a rental property will be successful as a real estate investment or not, that is, if this income property will have good, strong positive return on investment or will make us lose money. Thus, location is the first thing you should look at when you explore and analyze an investment property for sale which you consider for growing your real estate investment portfolio. How is the local economy performing? What does the housing market look like? Is it a buyer’s market? Is it a seller’s market? How is the rental market? What do tenants look like and what are they looking for? How are the nearby amenities? Are there shops, transportation, schools, colleges, universities, hospitals, and jobs around? Location includes the state, the city, the neighborhood, the street, and the actual spot of your potential rental property.
So, the first step to take when considering a certain investment property for sale is to conduct real estate market analysis to see how the local housing market looks like and how your potential income property compares to other investment properties around.
Related: How To Perform A Real Estate Market Analysis
What to look at in an investment property for sale: The property price
Of course, when you are buying an investment property, whether you are new real estate investors or experienced real estate investors, you have to look at the property price. That’s what will determine whether this property is affordable for you. This is especially important for new real estate investors who are more likely to have only a limited budget to work with. As you are growing your real estate investment portfolio and becoming one of the more experienced real estate investors, you will be more capable of affording more expensive investment properties. Remember: no matter how amazing a rental property might be, it is a bad investment choice if you cannot afford it. It is as simple as that!
What to look at in an investment property for sale: The financing options
Directly related to the property price, you also have to consider carefully what financing options you have for buying an investment property. If you are one of the few lucky real estate investors who can afford to pay for their investment properties all in cash, great. If not, which is the more realistic scenario, especially for new real estate investors, you will have to rely on borrowing as a financing method for buying an investment property. You can turn to your bank or one of the local banks for a mortgage loan, or you could use private lenders money. Just make sure to explore all options carefully, and choose the one that suits your budget, your needs, and the particular rental property which you are considering buying.
Related: What Are the Best Ways for Financing Investment Properties?
What to look at in an investment property for sale: The property type
The next thing that you should look at when analyzing an investment property for sale to use for growing your real estate investment portfolio is the property type. A property type can be anything such as a single family home, a multi family property, a townhouse, an apartment, a condo, etc. The property type is directly related to the location as a certain rental market favors a certain type of property for rent. For example, if you are buying an investment property in a college town, it is best to buy an apartment while staying away from a single family home, which would be unaffordable for students. Meanwhile, if you are buying an investment property in the suburbs of Boston or New York, let’s say, you may want to look for a single family home as most tenants would be families with children who work and study in the city. So, real estate investors should always make sure to analyze the local rental market and choose the right property type for this rental market. Prospective tenants should determine your property type when looking at an investment property for sale.
What to look at in an investment property for sale: The rental strategy
Another factor to consider when buying an investment property is the rental strategy that you prefer and that you would use for this rental property. Both traditional rentals (long-term rentals) and Airbnb rentals (short-term rentals) can yield very high return on investment for real estate investors; however, they have to be located in the right location and be of the right property type. So, before you decide whether to buy a certain investment property for sale, make sure to tie the location, the property type, and the rental strategy all together to get the highest return on investment possible in your particular case.
What to look at in an investment property for sale: The property itself including condition, age, and other characteristics
Of course, even if you choose the best location with the most booming housing market, you can still make a bad real estate investment if you buy an investment property in a terrible condition. You should look at the potential income property carefully to evaluate its state and condition. Make sure the rental property will not drive you broke before you get it into a rentable state. Check the floor, the ceiling, the roof, the water pipes, the heating and cooling system, the kitchen, the bathrooms, etc. Do not buy an investment property in a bad condition unless it is really, really cheap.
What to look at in an investment property for sale: The expected return on investment
Last but not least, when buying an investment property for sale, both new real estate investors and experienced real estate investors have to analyze the expected return on investment. Here we come back to the real estate market analysis which we mentioned above and which will help real estate investors compare their income property to other rental properties in the local housing market. Real estate investors also have to conduct investment property analysis to estimate the return on investment in terms of rental income, cash flow, cash on cash return, cap rate, etc. This investment property analysis does not have to be difficult as real estate investors can rely on Mashvisor’s investment property calculator to do the job for them. Only choose investment properties which yield positive cash flow, good cash on cash return, and good cap rate.
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
Buying an investment property is not an easy process, but it is manageable if you remember to use the tips above for analyzing an investment property for sale. Real estate investors can make money, lots of money, in the current housing market if they buy the right rental properties, which is achievable with the help of Mashvisor’s investment property calculator. Mashvisor will also give you access to thousands of investment properties for sale across the US, with ready investment property analysis and figures related to the expected return on investment.