You have your legal and financial ducks in a row to invest capital in property, but what should you buy? You also need to assess what type of owner you plan to be. Will this be your new residence? Will you purchase, renovate and flip it? Or are you planning to be a landlord? There are many different options available in various categories of investment real estate, but which one is right for you and your portfolio?
Location, Location, Location
One very important factor of a great investment property is the location! A rental property in a great neighborhood will attract many renters, and you will have the opportunity to pick the best one. If you select a not-so-great neighborhood, the applications you receive may not be your first choice of renters. Look for new infrastructure projects planned or currently under construction. Also, check if the municipality plans on building a new attraction in the area.
Another indicator of a great location is high priced real estate. High demand in the area will drive prices up, possibly over true market value for the area as a whole. As an alternative, choose a more reasonably priced property in the outskirts of this area, it will soon be in demand! A bonus of these properties would be a dependable transportation system that brings residents into the desired city.
Desirable Purchase Price
Many experienced real estate investors go by something called “the 1% rule.” This is where the income property should rent for at least 1% of the purchase price in order to yield a positive return, or cash flow, which makes it a great investment property. The key to this practice is knowing what the market rent is currently in the area you are browsing. For help with determining market rent in Minneapolis or maybe another area in Minnesota, give us a call at (612) 807-2000.
Property Assessment Value
Another factor in determining a desirable purchase price is to look at the city or county assessment data. Usually, the market value of the property is somewhere between ten and twenty percent over the assessed value. If the property is posted at or below the assessed value, it may be a great deal, but make sure to complete your due diligence to make sure this property is worth the risk.
You found this great neighborhood with a planned water park a short drive away AND it’s a great deal that fits the 1% rule with great ROI potential, but how does it look? If the property listing doesn’t have more than one or two pictures, that may be a bad sign. It might also be to your advantage! If the owner or the owner’s agent doesn’t take the time to hire a professional photographer or post any pictures of the property other than the ones easily found on the internet, this might mean they are extremely motivated and looking for a quick sale.
Make sure to drive by the property and check for any blatantly obvious structure imperfections such as cracks in the walls or an uneven roofline that may have happened since the pictures on the listing were taken. You can also tell if the property has had any additions by looking at the roofline, and it might possibly different exterior finishing. Check that this property has had the proper permits pulled for all work done, otherwise it could be extremely costly in the long run and ruin your ROI! Never buy an investment property without an inspection!