Alright, you want to invest in real estate. But where do you start? In today’s market, you can make many real estate investments, but there are also many ways to fail.
Did you know? Each investment has unique characteristics, and there are certain things that most every lucrative real estate investment has in common.
So what exactly do successful investors look for when evaluating potential real estate investments?
In this post, let’s discuss six features of a highly lucrative real estate investment.
Below-market purchase price
The purchase price is the first thing to consider when looking for a real estate investment.
So, if you’re buying a home below market value, it may be easier to get your money back when it comes time to sell.
Think of it this way, the lower you pay for a property, the more money you have to invest. Therefore, you can save a lot on your down payment since you don’t have to spend as much on the property as the seller wants.
This will also reduce your monthly mortgage payments, giving you more money for other investments or personal expenses. Many people think that this only applies to residential properties, but it also applies to commercial properties.
Commercial properties often sell for less than their market value because people who own these want to sell them quickly, or they need some renovations or repairs.
You can buy commercial real estate at below-market prices if you know where and what to look for. In addition, you can find great deals on buildings not yet listed on a broker’s website or Craigslist ad.
To know more about buying below-market prices, check out cashflowportal.com for more details.
It would be best if you always looked for properties in areas with a high demand for housing. The best places will have new developments or renovations happening around them.
So, if there’s no construction in the area, it might be time to look elsewhere or wait until something develops nearby.
Areas with a shortage of homes will also often be able to charge more per square foot or unit than other areas.
So, if you can find an area with both high demand and limited supply, you will likely make a lot of money on your investment.
You will also want to consider the neighbourhood itself — especially if it’s an urban area with lots of crime or other problems plaguing it.
For example, if you’re looking at an inner city neighbourhood or one in an area where drugs are sold openly on street corners, these areas may not be worth your time as they won’t yield great returns once they’re renovated and sold again later down the line.
Strong potential for rent increases
It would be best if you looked for properties with solid potential for rent increases.
This means that you should find a property that has been recently renovated and is located in an area where there is a high demand for rental properties.
When you own a building, there are two main ways you can make money: by collecting rent from tenants or selling the building at an increased price than what you paid.
You can only make money from selling if other people are willing to pay more than what you initially paid for it. If no one wants to pay more than what you paid for it, then there won’t be any value in selling.
The same goes if you are buying a residential property; ensure that it is located in an area with lots of schools, colleges, or hospitals so that you can charge higher rents from students or patients respectively.
Or, if you want to sell your house later down the road, it needs to have strong potential for increasing rental rates over time (unless your strategy is “buy cheap houses and hold onto them forever”).
Low operating expenses
Operating expenses include mortgage payments, property taxes, insurance premiums, and maintenance fees. These costs can add up quickly, especially if you don’t have experience managing properties independently.
However, there are ways to keep these costs low while still earning profits from your investments.
For example, if you cannot manage maintenance work yourself, you can hire experts who specialize in that kind of work so that repairs are done quickly and efficiently at an affordable price.
In a firm or growing market
Real estate markets change over time, so it’s crucial to find well-positioned properties in their current market.
A property in a firm or growing market will likely retain its value or increase over time as long as supply remains constrained and demand continues to rise.
Investments that go up as the market increases tend to be safer investments. You don’t want to be stuck with an investment that goes down when the market goes down.
That’s why investing in areas with strong growth potential that have been around for a while (so they haven’t had any significant dips) is essential.
If you’re new to investing, look at areas that are developing quickly — cities where people are moving because of job opportunities or expanding businesses are opening up nearby.
Areas like these tend to see continuous growth over time, which helps protect your investment from drops in value when there’s an economic slowdown or recession.
Investment properties must be close to other properties (such as multi-family units) or businesses that generate traffic, such as shopping centres or restaurants.
Good cash flow to cover operating expenses and debt service.
The best investments will provide enough cash flow (income) to cover your mortgage payments, taxes, and insurance, plus any other expenses associated with owning the property, such as maintenance and repairs.
This is called “positive cash flow,” which means that your monthly income exceeds your monthly expenses by an amount that allows you to earn some profit each month after paying all the bills.
So if your investment generates enough income to cover these two categories of costs, then you will have a profitable deal on your hands!
The real estate market has changed a lot over the past few years. Still, for those looking for good investment opportunities, there are a lot of places to look.
But first, you’ll need a realistic budget, so you should start by looking at homes and neighbourhoods within your price range. Then, figure out how much space you need and what features you want in the house.
The six features in this article will help you identify the best real estate investments. Now that you know what to look for in real estate investments, it’s time to put your knowledge into practice.