Are you invested in real estate? If not, it’s time to get started. It’s the path that most millionaires take to build their wealth.
And it’s one of the best asset classes for preserving wealth once it’s obtained. Companies come and go, stocks go up and down, but houses will always be in demand.
If you’re looking to get started as a real estate investor, to take advantage of monthly cash flow and price appreciation, then you’ll need to know what to look for in an investment property.
Not every home or every market is ideal for investment. Finding the right property will make or break your ability to actually earn a healthy ROI.
So keep reading our investment property guide below to learn more about identifying the perfect investment property for you.
Number of Units
So what is an investment property? Anything you can rent out.
As a new investor, you’ll typically be looking to invest in homes rather than apartment buildings or commercial real estate. Houses are much easier to find and acquire financing for.
But you get to decide if you’re going to buy a single-family home or if you want to find a two, three, or four-unit house.
Both can be solid investment strategies, but they are very different. Single-family homes are more desirable for retail buyers, so competition is often much higher. And their value appreciates more over the long-term.
But you only have one tenant paying rent, so you’re monthly cash flow is limited.
With multi-family houses, you have multiple people paying rent. If each unit is rented out, your potential for monthly cash flow is much higher, allowing you to make more in the short term.
More units, however, means more management.
Value Add Properties
The smartest investors don’t buy move-in-ready houses. If they did, they would overpay for a rental property.
There’s no opportunity to add value and increase their equity. That’s why they look for outdated properties or those that need a bit of work.
Buying these can result in a discount on the purchase price. And by performing some renovations, they can experience a big jump in value, and thus, equity.
Distressed Sellers
For an investment property to make financial sense, it needs to be purchased as cheaply as possible. You can’t pay the asking price or compete with retail buyers.
In order to get discounted properties, you often need to find distressed sellers who need to offload a property quickly.
That way, you help them out by getting a property off their hands, so they can move on. And they help you out by giving you a good deal.
Distressed sellers are often those who inherit property, get a divorce, or experience other stressful circumstances.
Alternatively, you can look for advisors who either sell investment property directly or can connect you with sellers. Be sure to check out this article to learn about what you should ask your advisor when contemplating a deal.
What to Look For in an Investment Property
Buying an investment property is a big process. There are countless decisions you have to make, but each time you do it, you’ll get a little bit smarter.
Now that you know what to look for in an investment property, you can start searching for your first deal. It might not be the perfect deal, but as long as you get started, you’ll be building wealth.
Looking for more investment property tips? Head to our blog now to keep reading.