You’ve probably heard the horror stories about people who buy a property for investment purposes, and then that property turns out to be a huge money pit rather than a money-making asset. It can certainly happen, but it doesn’t have to if you keep in mind these 5 features of a profitable investment property in .
So, then, what are three most important things to look for when you’re considering a potential investment property? You already know the answer because you’ve heard so many times before. And those three things are, of course, location, location, and location.
But that seemingly over-simplified answer contains all the rest within it. With that in mind, we offer these 5 features to help you in your investment decisions.
Low Crime Rate
You most likely won’t want to invest in a property in a high-crime area. On the face of it, this probably seems to be the most obvious of our 5 features of a profitable investment property in . But things aren’t always what they seem on the surface, so you have to do a little digging.
Check with the local police department and visit the public library to get accurate crime statistics for the area in which your potential investment property is located. Be sure to look at the number of both serious and petty crimes, vandalism rates, and the growth/decline in local crime rates. It’s also a good idea to talk to neighbors about the frequency of police presence in the area.
The personality and quality of the neighborhood (and there’s location again) play a big part, too. The kind of neighborhood will determine in large part the kind of tenants you will attract.
Here’s an example. Suppose a property you’re considering is located very near a college or university. That means the pool of potential tenants you have to draw from will consist largely of students. And, as a result, you’ll have to deal with frequent vacancies, especially during the summer months.
Reasonable Property Taxes
Property taxes are, of course, an inevitable expense, but they aren’t always as uniform and predictable as you’d think. And you don’t want overly high property taxes to cut into your investment returns. So, again, you need to conduct some research.
A good place to start is the local assessment office where the tax information for your property will be on file. You can also talk to homeowners in the area to get a feel for property-tax rates.
Solid Job Market
Obviously, if they can’t find work, they can’t rent it or buy it. If the investment property is in an area with solid or growing employment opportunities, then it’s probably a good bet. And if a large company has announced plans to move into the area, that can be an even sweeter deal for you.
Your research in this area should probably start with the U.S. Bureau of Labor Statistics where you can find a wealth of information on employment prospects in the area. And, again, the local library can be a good source for pertinent information.
Profitable Rental Rates
For most people, rentals make up the largest portion of their investment property strategy, so it’s imperative to find out what average rental rates are in the area. If you can’t command a reasonable rental fee, then you can’t turn much of a profit on your investment.
You know that the amount of rent you can charge must cover your mortgage payments, property taxes, and upkeep expenses. The thing to keep in mind, though, is that even if rental rates are adequate for this right now, they may not remain that way in the future. What you have to do, then, is look at rental rate trends over, say, a five- or ten-year period. You need to determine whether rental rates will remain high over the next five years or so to justify investing in a particular property.
Just keep in mind these 5 features of a profitable investment property in , and you’ll likely be well on your way to a sound investment.