For those who are looking to purchase an investment property, it can be a great start to a successful financial venture that leads to more investments. It can mean a large payoff long-term with the right purchase made. Whether wanting to flip a home or rent it out long-term, there are many factors to consider before beginning. Before you purchase the property, it’s important to consider a few factors that can determine how much you’ll benefit in the future and how to avoid loss that can occur.
The Quality of the Neighborhood
If you’re planning on flipping a home or renting out a property, the neighborhood will ultimately determine how much of a return that you make despite the purpose of the property. The zip code will be the main factor that determines the value of the property and how much you’ll be able to rent or sell it for. You can easily attempt to upgrade the kitchen countertops and remodel the entryway, but if the house is in a poor neighborhood then the upgrades will have a minimal effect on how much you make. Look at the quality of the surrounding homes and if a homeowner’s association is established.
To understand the area better, look at the value of other homes on the market in the surrounding neighborhoods. You’ll also want to visit the location at different times of the day to gain a better understanding of the area.
The Extra Expenses Involved
You’ll need more than a down payment and a strong credit score to make money off your first investment property. There is a long list of expenses involved with owning a property, which includes legal fees, utilities, office supplies, accounting, maintenance, property management companies, property taxes, the cost of evictions, and loss that can occur with a vacancy throughout the year. You’ll want to budget the cost of each expense to ensure you can afford the upkeep and services needed to maintain the property for an extended period. Keep in mind that the expenses will often equal 50 percent of the income you make on the property, which should be factored in when setting goals on how much you want to make.
The Type of Property You’ll Purchase
There are many different types of properties that you can purchase, but the type that you own will determine how much work is required. For those wanting to rent out a property, avoid purchasing expensive homes that are in excellent condition, which means having a lower net rental income due to higher expenses. You can also choose to purchase the home to live in yourself before renting it out, which will allow you to get a clearer picture on what improvements to make and how the space can be improved.
Creating an Exit Strategy
With any type of investment, it’s crucial to have an exit strategy to avoid loss that can occur with the market. Although you may have a plan established on how the property will bring in money, a second and third plan should also be in place. Know what you’ll do if you’re unable to sell the property. You should also have a plan if the home stays vacant for an extended period of time.