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Buy Income Property |
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What to Look For in Your Investment Property
The following are guidelines for what to look for when you are deciding which income property to buy: · Physical Structure - Look at the physical property. Is it in good shape? Are there any issues (mold, insects, structural damage, leaky basement or roof, septic system)? If you really like the place and are thinking of buying it, make sure you hire a professional inspection to actually look inside the walls, underneath the house, on the roof, etc. · Layout - Is the property laid out in a pleasant and useful way? Will tenants be like the layout? · Location - Is it located near transportation (buses, trains, highways), parks, churches, shopping, nightlife? Is it in a friendly neighborhood? Think of what your future tenants will want and try to find as many attributes as possible. · Neighbors - Try to find an investment property that has good neighbors. If you are renting to students, find a student neighborhood. If you want to rent to families, look for a neighborhood with lots of kids and parks. Also, look at the size of the other buildings. Try not to be the smallest or largest house on the block, as your valuation will depend on the sale prices of the neighbor's homes. · Special Amenities - Does the house have anything special about it? These amenities often make it much easier to rent the place. Examples of valuable amenities include laundry facilities, swimming pools, workout facilities, decks, gardens, specialty rooms (like a library, an office, a loft), storage space, garages, etc. The more amenities, the more the place will be worth when you rent it and the faster it will rent. · Appliances - Make sure the appliances do not need to be replaced right away. If they do, make sure your offer reflects the cost of purchasing new appliances. It is a useful tool to help you negotiate a lower price. · Repairs Needed - Does the property need any repairs? Typical repairs include: cracked driveways or sidewalks, leaky roofs or basements, old appliances, cracked paint, poor landscaping, structural damage, mold, insects, worn floors, broken windows, etc. Whether you are looking for a fixer upper or for a low maintenance investment property, make sure you find and estimate the cost of all the repairs you will need to make. Use these to negotiate for a lower price, and also include the numbers in your financial cash flow estimates. · Maintenance Costs - Look for low maintenance costs, relative to the cost of the investment property. If you are paying for utilities, make sure the place is energy efficient. Realize that things like swimming pools, hot tubs and extensive landscaping will be expensive to operate. Also, the more common areas (entryways, hallways, laundry rooms, workout facilities, etc.), the higher the maintenance costs. Also, get an estimate from the current owner of how much it costs to maintain the place. Include breakouts for water, garbage, gas, electric, landscaping, property management costs, miscellaneous annual repairs, painting and anything else you can think of. Use these costs in your financial analysis to try to derive how much money the investment will really make each month. · Property Taxes - Before buying, find out how much property taxes will be. Compare this to tax rates in other suburbs or cities that you are looking at. Sometimes they can vary dramatically. Factor this into your financial analysis. · A motivated seller - If you can find an investment property that is owned by a motivated seller, your chances of making a profitable deal increase ten-fold. A motivated seller is anyone that has strong reasons to sell the property. Reasons include loss of job or income, the need to move, not being able to keep up on their mortgage payments, if they inherited the property and need to divide it among several estate owners, if the house has been on the market too long and people have lost interest, and many other reasons.
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