Although an investment property can generate a substantial profit, this does not mean that such ventures are without risk. Indeed, investing in a property in very poor condition and/or located in an area with low housing demand can be financially ruinous. That said, it is in every investor’s interest to mitigate risk when purchasing investment property. Anyone looking to minimize their chances of ending up with a lemon from an investment property can benefit from the following tips.
Research local housing demand
No matter how beautiful or well maintained a property is, it is unlikely to generate a handsome profit in an area with low housing demand. So if you’ve ever wondered why so many real estate agents love the “Location, Location, Location” mantra, it’s a mystery solved. For many real estate agents – and more importantly, many home seekers – the location of a property premium on the property itself. For example, a small property with light amenities in a high demand area is likely to generate a larger profit than a large property with lots of amenities located in a low demand area.
So before you start any paperwork, be sure to research local housing demand. More often than not, large metropolitan areas with robust labor markets and plenty of leisure activities have a higher level of demand than smaller areas with poor local economies. Of course, that doesn’t mean that every high-demand area is near a major city — or that every low-demand area is a small community.
Work with an experienced investment firm
If this is your first time investing in real estate, you can benefit from the advice of competent experts. So if you have friends, family or other acquaintances who have experience with investment property, you have nothing to lose by asking them for advice. You will also benefit from working with a highly rated investment firm. A company like OmniLytics can provide you with the data you need to effectively minimize risk and maximize profit.
Have the property inspected
You should never invest in a property that has not been thoroughly inspected. No matter how beautiful a property is from the outside or how detailed a visit you have personally made, it is imperative that you work with a certified home inspector. These people are trained to identify a wide range of issues that may escape the gaze of non-professionals, and the last thing you want is to end up with a property that needs major repairs and/or renovations that you don’t have. had no idea they were needed.
If a seller strongly rejects the prospect of a professional inspection, let them know that an inspection is a prerequisite for your intervention. As a buyer, you only benefit from an ongoing inspection. For one thing, the inspection results will ensure that you know exactly what you’re getting, helping you make an informed decision. Second, if the inspector discovers previously undisclosed issues with the property, your negotiating position will be much stronger.
Consider maintenance costs
If you are interested in investing in a rental property, it is imperative that you carefully consider maintenance costs. For example, if you’re looking to buy a small, single-family property, the management and maintenance fees will likely be quite reasonable. However, if you have a large multi-family property in mind, the aforementioned costs are likely to eat into a large chunk of your monthly profits. Apartment and condo complexes with dozens of units often require on-site management and full-time maintenance staff. Therefore, when calculating monthly expenses, be sure to factor in the salaries of any maintenance professionals or property managers you intend to work with.
Investment properties can bring in a significant amount of money each month. However, to believe that every investment property you come across will also turn out to be profitable is sheer madness. Given the magnitude of the financial sacrifice that a typical rental property represents, it is in every investor’s interest to mitigate risk when finding the ideal properties. To make sure you don’t fall into an acute case of buyer’s remorse, put the tips outlined above to good use in your search for the right investment property.