4 Things to Consider When Buying Investment Property
1. Location –
Everyone knows that LOCATION is the #1 factor to consider when buying a house. That goes for buying investment property as well. “Location” is a wide-range variable for so many questions.
- How close to the highway is the house?
- Who are the neighbors?
- Where is the closest grocery store?
- How far is downtown?
The location of a home affects a person’s quality of life. Proximity to activities, schools, shopping and public transportation determine free time and family time. Where the house is located is every bit as important as the house itself.
2. Condition –
Obviously, the great thing about investing in real estate is the fact that you can turn elbow grease in to equity. However, there are limits to your ROI (return on investment).
At BTGH we have a formula we use to determine whether or not a house, condo or multiplex is a good investment. We consider the outside factors first (like location), and then we look at the condition of the house.
The biggest increase to the value of a property is through cosmetic improvements. Improving the look of a property by either redesigning the landscaping, rehabbing the kitchen or putting new tile flooring in will do more for its value than stabilizing the foundation or adding insulation.
It’s kind of sad, but true. Make it look shiny and new, and people are more likely to buy it.
3. Neighbors –
People are social. For the most part, we like hanging out with other people. Of course, that doesn’t mean that we’re compatible with EVERYONE.
For example: We were considering purchasing a property for sale in the historic Tampa neighborhood of Seminole Heights one day last year. It was a beautiful little bungalow with hardwood floors and a fireplace at the end of a cul-de-sac. (Ok. So it wasn’t exactly a cul-de-sac. It was actually a dead-end that looked over I-275, but if you’re SELLING, then it’s a cul-de-sac.) As we toured the house, I noticed two little old bearded men next door, sitting in the driveway, drinking beer and looking over an old lawn-mower. More investigation saw MANY old lawnmowers in the backyard. Some were in a broken down old shed, and some were under tarps. This of course sent up a red flag that these little old men might be hoarders harboring rat nests in their old lawnmowers, and that they may even get a little rowdier as the day wore on.
After a little touring of the house, I again took a peak outside at the neighbors, and this time was surprised to see one of the little old men standing in our yard, peeing on the side of the house. At this point I decided that keeping a steady renter in the house with these guys next door was going to be areal challenge that I wasn’t willing to take on – at least, not for the asking price… or even $10k less.
When you’re considering a real estate investment or thinking about converting or purchasing a rental property, take a good look at the neighbors. The neighbors around that house will dictate who your tenants will be. If the house is surrounded by transient neighbors, you’ll very likely have regular turnover. If the neighbors are older, your tenant are likely to be older. Purchase houses and rental properties that represent the people you’d like to rent to.
4. Price –
More important than price is Return on Investment. The “price” of a house, is not exactly the “cost” of the house. When buying a house that you intend to convert into a rental, you have to consider the costs of getting it ready to rent, then consider ongoing maintenance costs. The best way to spend your money is on cosmetic improvements.
Americans are very impressionable and are always concerned with what others think about them. As a landlord, installing a state of the art A/C system is not as crucial as freshening up the front yard landscaping, painting the walls, or re-grouting the bathroom tiles.