The real estate industry is turning millionaires into billionaires, and it’s one area of the world economy considered to provide some solid investment security. There is no debate in the fact that at least one in every five world billionaires own some real estate investment property. Another thing that we also can’t argue with is that investment in a real estate property requires some deep background information about the housing market as a whole.
Anyone who finds themselves capable can purchase an investment property. However, you might need to evaluate a number of factors that are part and parcel of real estate investment portfolios. Here are a few tips to help you get started with buying an investment property.
Analyze and Evaluate Property Metrics
There are several metrics associated with an investment property which you must stay ahead of if you want to start out strongly as a property investor. Most importantly you need to evaluate the potential of the property in order to earn you some decent revenue once you purchase it. Consider, where your property is located, what are the vacancy rates? Are you purchasing a rental property in an area where people are putting up their own residential houses? It would be preferable to buy a rental in an area with a low vacancy rate.
While still evaluating the metrics, it would pay off to look at the employment rates and economic growth rate in the area. Your property will gain more value if located in an area with a rapidly growing economy. Also, look out for red flags such as crime rate and job cutbacks if any.
Carry out Local Area Rent Survey
Buying a property means you will have to determine a target of how much you need to earn monthly to reach the break-even period. To help you reach that figure, you can carry out a local rent survey. To do so you must estimate how much rent to charge for your property without scaring away potential tenants.
Compare the value and size of the property you want to purchase with other similar rentals within the area. Find out their rent and then determine if you should charge slightly higher or lower.
If there is a high demand for housing units in the area, charging slightly higher rent won’t hurt your investment portfolio.
The first step recommended when looking to purchase a property is to inspect its structural elments and anything else pertaining to the property. Note down problems that need fixing or some that are prone to happen from time to time. Check if all codes of construction were adhered to especially in the laying of gas, electricity and water lines.
It is usually advisable to pay a professional property inspector instead of trying to do the inspection yourself. This will save you time and money in the long run.
Get a Team on Board
Managing an investment property is not easy. There is a lot of maintenance and servicing that goes into any rental property. You may need to hire a plumber, an electrician, and an HVAC contractor for all the periodic maintenance works.
If you are new in real estate investment, you can hire a property manager or real estate agent to help you with some of the duties of managing your rentals.
Calculate your Margins
Most well-developed real estate firms usually target percentage returns of between 5%-7%, but for an individual investor, you should be targeting returns of at least 10%. Any property you intend to purchase should meet your target after possible deductions.
While calculating your margins, remember to factor in maintenance costs, which should not exceed 1% of the property’s value. Other costs that will come with purchasing any property will include insurance and property taxes.
Plan an Exit Strategy
Invest in a property that has a decent resale value. In case of any changes in fortune, you might want to move onto a different investment. It is therefore important to have a viable exit strategy in place. Plan on how and to who you will resell the property. Is it another investor or a bank? How will the economic atmospheres be at the time of the resell? A good investor will have to figure these questions out to come up with a feasible exit strategy.
There are quite a lot of challenges that if not properly circumnavigated can be really frustrating. The tips provided above will give you a nice lead to begin with.