2022 is the year of real estate investment. With low interest rates, it’s definitely the right time to start building your real estate portfolio. But how can you get started with the perfect investment property?
Here’s everything you need to know:
Consider the Real Estate Market
The first thing you need to consider when looking for a good investment property is the real estate market.
Should You Buy in a Hot Market?
Many potential real estate investors are understandably skeptical about buying a property in a hot real estate market. However, hot real estate markets can offer great investment potential. After all, they’re hot for a reason. The “heat” of a real estate market reflects its overall desirability.
In most cases, you might be better off buying in a hot real estate market where tons of people are moving rather than a cheaper and less competitive — but also less desirable real estate market.
Before you start looking for the right investment property, you also need to consider your real estate investment strategy. There are countless investment strategies to choose from.
Here are three that you may want to look into:
1. Buy, Flip, and Sell
If you’re not looking for a long-term investment, then you may want to consider buying, flipping, and selling. This strategy involves buying run-down properties, fixing them up, and selling them for a profit.
Flipping is definitely a high-risk and high-reward strategy with little room for error. As a result, it’s best left for experienced investors who have the knowledge and skills needed for successful flips.
2. Buy and Rent Out
If you’re looking for a more long-term investment, then you may want to consider buying a property and renting it out. While no investment is without risk, this strategy is less risky simply due to the fact that it’s more long-term.
Essentially, you’re hoping to get renters who are able to pay for the cost of your mortgage in addition to any maintenance and management costs.
3. BRRRR Method
A specific type of buying and renting is known as the BRRRR method. In this plan, you buy a run-down property, rehab it, rent it out, and refinance it before repeating the process with another property.
The BRRRR method is a great method if you’re really looking to build your investment portfolio and don’t mind getting your hands dirty with some renovations to earn top dollar from tenants.
Consider Your Renters
Speaking of tenants, you also need to consider them when you’re searching for a good investment property. What types of tenants do you want in your property? What are these tenants looking for in a home? How will you find these tenants? These are all questions that you need to ask yourself.
For example, are you looking to rent to families or to single professionals? If you’re looking to rent to families, then you should purchase a single-family home in the suburbs. On the other hand, if you’re looking to rent to single professionals, then you should purchase condo units closer to the city.
You also need to decide if you’re looking for long-term tenants or short-term tenants. Generally, you may be able to earn more from short-term tenants on platforms like Airbnb and VRBO. Note that this method often requires more work and comes with more risk of vacancies, damage, etc. These tenants also come with different needs. This approach requires that your property be located in an in-demand vacation destination.
So if you’re looking for a more low maintenance investment and don’t mind a slower rate of return, then you may want to consider securing long-term tenants with years-long lease terms rather than renting out the property on a short-term basis to vacationers.
Consider Your Finances
In an ideal world, you could purchase any investment property you wanted without considering your finances. In the real world, your finances should play a large role in finding an ideal investment property.
Do You Need to Finance the Property?
First, you need to consider the financing of the property. Do you have enough cash to cover the entire purchase of the property? If not, you will need to secure financing for the property through a lender.
How Will You Finance the Property?
There are a variety of different ways that you can finance the purchase of an investment property. For example, you could take out a conventional mortgage with a traditional lender like a big bank. You could also take out a hard money loan with an alternative lender for short-term investments.
One unique solution comes in the form of a bridge loan from a private lender like Vaster. A bridge loan is also a short-term financing solution, but it comes with lower interest rates than a hard money loan. Using a bridge loan to finance an investment property allows you to make a competitive offer and then gives you plenty of time to secure permanent financing.
Consider the Property
Now that you have a better idea of where you should buy, who you’re buying for, and how much you can afford to buy, it’s time to actually start looking at potential investment properties.
Here are some different factors to keep in mind during your search:
Is the Property in a Good Location?
You know what they say in real estate: location, location, location. This rings true even when it comes to investment properties. You’re going to get a greater return on your investment in properties located in a good area. So even though you may have to pay more for a better location, it’s going to be worth it.
But what makes a “good” location? First of all, safety. Check the crime rates in the area. Second of all, schools. Check the ratings of local schools. Then you need to consider things like proximity to stores, entertainment, and more.
Is the Property in Good Condition?
You also need to consider the condition of the property. The best way to do this is to get a home inspection. A professional inspector will check the condition of the property as well as the function of its systems, including HVAC, plumbing, and electric. Getting an inspection gives you peace of mind that you won’t have to pour tons of money into the property after closing.
If you’re taking the BRRRR approach, it makes sense to buy a property that’s less than pristine. Oftentimes, you can save money by improving the property yourself instead of buying a move-in-ready property. Overall, it’s best to try to buy a property that only needs cosmetic upgrades rather than a complete overhaul.
Consider Maintenance and Management
Finally, you need to consider the maintenance and management of your investment property.
Is It a Low Maintenance Property or a High Maintenance Property?
Ideally, you should choose a low maintenance property over a high maintenance property. Generally speaking, older homes are going to require more maintenance than newer homes. Added features like pools are also going to require additional maintenance that should be budgeted for.
Are You Going To Use a Professional Management Company?
If you plan on renting out the property, that involves managing it. However, if you don’t want to personally be a landlord and deal with midnight maintenance issues, then you may want to consider using a professional management company.
A professional management company will basically do all the hard work for you, but this work does come at a cost. Generally speaking, a management company will charge between 8% and 12% of the monthly rent collected for their services.
At the end of the day, it really comes down to your goals. Are you looking to maximize your profits and don’t mind getting your hands dirty and putting in the work to make it happen? Or are you looking for a more hands-off investment and don’t mind spending a bit of money to outsource your landlord responsibilities?
Interest in Investment
With this information, you’re all set to go out and find the perfect investment property! Just make sure that you have the right people on your team, including a good real estate agent, lender, inspector, and management team. If you’re looking for the best lender, then you definitely need to check out Vaster.