Purchasing residential properties is an easy way for new investors to begin directly owning real estate.
The business model associated with buying investment property for residential purposes is straightforward and most people can grasp the basic cash flow strategy without taking a course in accounting.
However every investor should study and understand the current and expected market conditions and choose only investments that are expected to earn profits under reasonable assumptions. The first step towards developing these reasonable assumptions and buying investment property successfully is to have a rational investment strategy.
Let's examine an imaginary prudent investor's four step strategy.
Step one - Evaluate your goals.
This includes your interests and desired level of involvement. You'll need to consider whether you want to actively manage your properties or if you'd rather be hands-off.
• What type of properties will most likely bring the returns you seek?
• What kind of initial investment do you have available?
• Are you a sole investor or will you be part of an investment group?
Step two - Assess the market.
Simply buying investment property haphazardly all over town can lead to disaster and confusion. It's much simpler to begin in one area and expand as your portfolio does.
If you're considering residential properties as rental units, start your research with the following area attributes:
• The migration of the residents, are they moving in or away from the area?
• How long do homes remain on the market compared to surrounding areas?
• What is the average annual market appreciation or depreciation?
Step three - You'll need a team.
At very least your team should include a realtor and an attorney. As your portfolio grows, you may consider adding a tax advisor and an insurance agent. If you're not the handy type you will definitely need a contractor on call to help you gauge repair costs and estimates.
Step four - Property selection.
If your goal is residential property, then you'll want to target those attractive neighborhoods that will appeal to employed tenants. Lower tenant turnover means less property damage and lower cost to rent again. Choose homes without those special features that result in higher repair bills or greater insurance fees i.e. avoid swimming pools and working fireplaces.
With a record high number of consumers who need to sell their homes, this is an excellent time for buying investment property. Decreased market values in many areas make it more possible to buy low for cash or with little debt and build equity.
Making a real estate investment now should find one in a financially equitable position once home values return to normal. What are your thoughts and comments? Leave them below!
