The “In’s and Out’s” of Investment
Properties
By: Austin Wentworth
Investment properties are my main
attraction to real estate. With opportunities to take properties that are not
living up to their full potential and invest into them in hopes of a higher
return is a challenging, yet rewarding task. Although there can be huge upsides
to having investment/ rental properties, there are also commonly overlooked
details that can really cost you in the end if you are not careful. There are many
factors that investors should take into account for potential properties, and
several details that need to be addressed in order to see the return you hope
for.
When you make the conscious decision to
find an investment property, it is an exciting, but also a strategic time in
the search for the best property for you. You may find yourself not knowing
every detail about purchasing a home, and think you need a real estate agent.
It is better to wait on hiring a real estate agent until you have taken the
time to educate yourself and make knowledgeable, unbiased opinions on
perspective properties. Realtors are a great asset in purchasing a home, but
they can also be incentive driven by their commission and at time, rush your
decision. One of the most common mistakes made by investors is their property’s
location. When purchasing a property, you must ask yourself whether you plan to
personally manage the property or pay someone else to manage it for you. If
your answer is, personally manage the property, and then you will want a
location that is within a reasonable distance to where you live.
When deciding to purchase an
investment property, everyone wants that property to be a profitable one. There
are several factors that you need to analyze as an investors, some more obvious
than others. A neighborhood in which the property is located is a crucial piece
to what kind of property you are looking at, and also what kind of tenants you
can expect to have. You need to pay particular attention to the situs; situs is considered to be the aspect of location that contributes to the
market value of a real property, which will have a direct correlation with
property value. Certain factors that can considerably increase a properties
worth include: Good schools, parks, and accessibility to shopping centers,
movie theaters, etc.
Now that you have found a property
with all the measurable that you want, it is time to take a critical look at
this property. . You will want to look at your prospective
property extremely closely for cut corners in the past, and any work that will
need to be done in the future. A property with high capital expenditures coming
in the near future can kill any NOI you wished to have secured. Another issue
that many investors face is a poorly written lease that is not specific enough.
Be sure to draft a written lease that is specific, and clear on the
expectations of the tenants and any recourse that will be taken if any clauses
within the lease are broken. A common mistake that investors/ managers make is
not properly accounting for vacancy within the year. If you own a property with
multiple units, it is possible that you may have vacancy within the year, and
you must account for this percentage so that you have assets put aside in case
you experience a lower NOI than expected.
In closing,
it is the investor’s responsibility to do all the needed work that is takes to
properly evaluate potential properties. The more you put into the search for a
property, the better protected you will be when you decide to purchase the best
property for you. This work may seem like too much at the time, but the more
you understand the risks and rewards of investment properties, the better
prepared you will be to successfully manage your property.
Resources:
Simple Ways
to Invest in Real Estate
How to Avoid
Common Mistakes Made by Rental Property Owners
http://whiteglovepm.blogspot.com/2013/01/how-to-avoid-common-mistakes-made-by.html
Top 10
Features of a Profitable Rental Property
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