From experience, I have come to note that successful property investment doesn’t have to be complicated, as long as you follow a few guidelines along the way. Indeed, I have noticed that by maintaining a cautious, income-centric, realistic and long-term strategy, you can make the most out of an investment property whether your market is up or down.
It is easier for you to wander away from these strategies, especially during the good years, as greed can heighten a disregard for sensible planning and risk. Why should you invest in property? Historically, property has always appreciated in value over time. While there might be plateaus and dips, if your plan is for the long run, investing in property is considered to be one of the less volatile, more solid forms of investment.
Generally, successful investors choose to invest continuously in property due to its potential in tax benefits, continuous rental returns and increase in value (capital growth). What exactly should you focus on when looking for a great investment property? Start by defining your goals even before you can start looking for a suitable location to purchase or setup your property.
The first thing to do is to figure out why you are investing and what your primary goal is. Some markets are good for appreciation but not good for cash flow. Other markets will produce significant cash flow but will appreciate almost at the same rate as the end of the last ice age.
By defining which market is the most appropriate to you is the beginning point. You may also want to consider some basic criteria. For example, some investors choose to only purchase property of a particular age.
Once you have your goals defined, you may want to start thinking of regions or cities that will fit these goals.
It’s a big country, so where do you begin?
Start from the top and work your way down. Our investors advise that you start from a macro level and scale down. The way to go about this is to isolate some Metropolitan Statistical Areas (MSA), which looks interesting to you. After this, you will begin carrying out your analysis on the economic principles of the area. What you shall be trying to determine is the overall health of the region. One of the things that you’ll consider in your analysis is the population of the region. As an investor, you need renters. Therefore, you’ll want a city or region with a lot of people in it. This readily provides you with a large, assorted population as your rental base.
Personally, I’d choose a city with at least 500,000 people, but other investors are comfortable with 200,000 or less. The key point is you don’t want to look for a small Podunk town which isn’t shown on Google Maps.
Is the population increasing or shrinking?
This is an imperative consideration when it comes to selecting a market to buy a property. If the general population is shrinking, you have not only an ever decreasing number of tenants, but also a shrinking economy.
Thriving,healthy areas will continuously record an increase in the number of people. Identify areas that have a population growth that surpasses the national average. You will also want to know the origin of the increasing numbers. If the region is becoming populous simply because of high birth rates, you may want to avoid it. Formation of new households is what should guide you.
What is the region’s unemployment rate?
The rate of employment or unemployment is another great indicator of how good or bad a particular economy is. If people lack jobs, they will not be able to afford high rents. Again, compare the unemployment rate within the region against the national average. If the number of people who are unemployed is below the national average but there are signs that the number is increasing while the average is decreasing, this could spell trouble. Conversely, if the number of employment is high but there is an indication that it is quickly dropping, then there are some positive underlying economic factors that you’d like to know more about.
How prevalent is the crime there?
This is not as obvious as it looks like. Each market is composed of smaller microcosms and has both low and high crime regions. It’s never enough to say that a particular region has low or high crime rates. You have to understand which areas are safe and which areas are not safe to walk even during the day. Crime rates will vary from one neighborhood to another.
How much is property tax?
Taxes are an important aspect of your operational expenses. Some regions have higher rates than others. It is, therefore, important that you minimize your taxes and maximize on your Return On Investment. Most areas will base their taxes on the properties assessed value. Cross check with the regions’ County Tax Assessors offices to find out the last time the property was valued and what the likelihood of having is more favorably revalued.
Do most of the locals own homes or rent?
Markets with a lot of homeowners obviously reduce your pool of potential clients. Look for regions with strong renter markets. Those markets with high foreclosure rates usually tend to have high rent rates as the original homeowners have been replaced with new ones. Just like other investments, finding a great investment property has lots of risks involved in it. However, if you do your homework thoroughly, you can minimize the out of state risk and instead open yourself to some incredible opportunities which may possibly not be within your hometown.