Price is only one factor when making a decision to choose the best investment houses available for your budget. Successful investors often learn from mistakes and by taking small risks that turn out to be profitable ventures. There are some basic guidelines that can be used to help evaluate if a property is good for your investment future or not in 2014.
5 Tips for Selecting the Best Investment Houses
There are more than five total tips that a person can use when evaluating investment property investments. This list has been narrowed down to some of the most important for new investors to consider before investing into any property for sale.
1. Research Neighborhoods
Rental homes are only able to produce the amount of income that neighborhoods can help generate. Investing in a low income level neighborhood might not position a property to be profitable for a number of years. Economic development in neighborhoods is important to the long-term financial plan for any investment home. Exploring homes in certain area and determining the monthly rent that is possible to earn can help provide insight into rental home profitability.
2. Calculate Cap Rate
Market capitalization rates are used by investors to determine the potential return on investment for properties. Learning how to calculate a cap rate and apply this rate to available investment properties could help determine future profits. The selling price of a property multiplied by the annual rent that is expected for a home can produce the cap rate for a rental. A higher cap rate can be a positive sign for new investors unsure about the potential returns available on a property. Cap rates are usually based on cash purchases and not financed homes.
3. Check Crime Statistics
Neighborhoods can sometimes be deceiving when evaluating potential properties to purchase. Areas can be groomed and appear to be in good condition although crime rates can be above average. Crime data for each city can be obtained through various resources online. The street address for a rental property can be used to determine the crime statistics within a certain radius. Low crime areas are often preferred by long-term renters. Decreases in crime rates could contribute to the success of a rental property as more renters are attracted to homes in good areas.
4. Evaluate Repair Costs
Some properties that are available on the market require repairs before or after purchases are complete. These repairs can sometimes be minor although problems that are hidden from view can be the most expensive. Not all home inspections are able to uncover problems not visible to the naked eye. Estimating repairs that are visible can help to determine the long term value that a property could generate. Homes that require repairs after purchase can lower the capitalization rate of a property.
5. Consider Other Opportunities
The purchase of a rental home is a big decision. There are many sources of helpful data that can contribute to the process of making tough decisions. If a property does not pass several self-tests, it can be a good decision to move on to other opportunities in the rental industry. Buying from turnkey property companies does provide one of the safest investments. Homes have been renovated, tenants are in place and these homes are often found in safe neighborhoods. Exploring all options before purchasing a property is always the best decision for new investors buying in 2014.