This article was originally featured on Adam's blog.
Every home buyer wants a good deal on their real estate purchase. However, investing in real estate can be overwhelming, especially if you’re just starting out as a first-time investor. There are plenty of reasons to think that property is a sound investment, but like any investment, it’s better to be well-versed before diving in with hundreds of thousands of dollars. Here, American investor and developer Adam Hochfelder share with us his extensive experience in investing and acquiring real estate investment properties. So, if you’re interested in owning a property, make sure to consider these key factors.
Investing in real estate is usually all about capital growth, so choosing a property that is more likely to increase in value is the most important decision you will make. When you’re on the lookout for investment properties, try to do research into the area it’s in. Look at criteria, such as proximity to transportation, hospitals, proximity to universities and colleges, major business centers, local restaurants, and shopping. It is also important that your property suits the demographics of renters in the area. For example, if your property is located near a university more bedrooms will be in greater demand than a big backyard or a lavish dining room. A family home situated on a quiet street that is close to schools and parks will be preferable over a property on a busy road. Adam Hochfelder also advises conducting a thorough check of ownership, type and intended usage of neighboring areas, and amenities like parks, malls, restaurants and movie theaters.
Determine Your Return
While it may seem simple and easy to capitalize on investment opportunities, there’s actually a lot of legwork involved. As Adam Hochfelder puts it, it takes a certain type of person to handle investment property well, and if you aren’t ready for the work, it is most likely that you aren’t going to turn the profits you could potentially. For income properties, monthly rent is the principal standard. Ensuring a steady rental income stream is also vital because the cash flow will make the holding of the asset more affordable and provide income. So, learn the average rental rates in the area you’re investing. At the very least, you’ll need to cover your mortgage payment, taxes and miscellaneous expenses like insurance. For every dollar you invest, you need to know the return. A 6 percent return in your first year as a landlord is considered healthy, especially given that number should rise over time. Constructing a financial plan and budget prior to purchasing is key as you’ll be covering not only the mortgage but also taxes, maintenance, design costs, improvements and unforeseen complications.
Size and Condition
A large property means higher budget and more repairs. Even if it isn’t a fixer-upper, eventually there will be problems which will fall on your shoulders. If you’re new to the business, the last thing you want is to get in over your head too quickly. That is why the real estate investor and developer, Adam Hochfelder, recommends staying away from fixer-uppers and anything that seems like it’s going to pose more problems to you in the long run. Before you purchase, you could engage a professional building inspector, and then once a year, conduct a thorough inspection of the property to find any potential problems.