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Posted over 7 years ago

5 Factors You MUST Consider When Property Shopping

Buying a house is a lot different from, say, buying a piece of jewelry. Or a car. Or virtually anything you can think of, really. That’s because real estate is a pretty significant investment, and it’s not one that you can make without a lot of forethought and planning. When you’re buying a rental property, there’s even MORE forethought and planning required, because your goals are different. You don’t simply want to own the property, you want to make money off it. And you’ve got to be sure you can do that before you sign on the dotted line.

In order to determine the potential profitability of a property before you buy it, there are some key indicators you should be looking at. Here are 5 of the most important:

1. Local Market - Generally speaking, for a rental property, you want to be in a market that is growing, not declining. While it’s true there are plenty of investors making money off of properties in declining markets, it’s a risky move and not one that I recommend - especially for investors without a lot of experience. A growing market offers less risk and plenty of potential for income, so take a look at the area’s growth history in terms of population, jobs, and the local economy. Are people moving to the area? Are they able to find work? Does it appear that they’re going to stick around awhile? If you can answer yes to each of these questions, you’re in a good market.

2. Specific Location - Let’s zoom in a little now and look at a more localized area: the neighborhood you’re eyeballing. There’s one very broad question you should ask yourself at this stage, and it is “Is this a nice neighborhood?” Yes, this question is very general and a little vague, but I think everyone reading this can tell a good neighborhood from a bad one. Now, I’m not saying you should never buy property in areas that some may consider “bad,” but you do need to understand that if you do this, you’re taking on a bit more risk. Overall, though, buying in a neighborhood where people take care of their homes and there’s a decent mix of owner-occupied and rented houses is a good move to make.

3. Numbers - Oh boy, I cannot stress enough how important it is to make sure the numbers back up your purchase. As mentioned, your goal is to make money, and to find out if you can do that, you need to run some calculations. Cash flow, appreciation, and equity are the main ways to make money off an investment property, so whip out your calculator and start punching in some figures to make sure that your purchase won’t put you in the red.

4. Condition of the Property - The condition of the property is another important consideration, and it’s also one that should reflect your investment strategy. If you’re flipping a house, obviously you want one in not-so-great condition so you can fix it up yourself. But if you’re just looking to buy a property and rent it out without putting in tons of time and money on repairs, you want something in decent shape. Do a thorough walk-through, hire an inspector, and get the facts about the property before you buy.

5. Will it Rent? - Once you’ve gone through and completed the tasks above, it’s time to ask yourself what is perhaps the most important question of all: Can you even rent the place? To answer this question, take a look at the surrounding properties that are up for rent. Are they vacant? Occupied? How much are they renting for? You can also call a local property manager to get their take on it and even ask for their advice or suggestions for renting in that particular location.

Like I said, there’s a lot of planning that needs to be done before you purchase an investment property. Research and calculations are your best friends, and putting in the time in these areas will help ensure that you’ve made a smart choice on your property. 



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