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What to Look for in an Investment Property

Main Goal of Investing : The main goal of renting out an investment property is to make money by generating passive income and to grow wealth.

This means that what you look for in an investment property will look very different from what you search for in your family home. We have created a summary of some factors you will want to consider to help you form a strategy prior to buying your investment properties.

Capital Growth

Capital growth is the increase in value of a property over time.  You will want to study the growth trend indicators for the property. Find out what the median sale price for the home is and if it has increased over time.  It is also important to consider the area and what it has to offer such as schools, how well homes in the area sell, crime rates, etc. All of this information will help you build a picture of what your future capital gains may look like.

Rental Demand and Yield

The main purpose of renting out your property is to generate income and cover the costs of the home. It is important that you research areas with high rental demand and to assess the financial viability of an investment property. Rental yield is a calculation that determines the profitability of a property. The yield will consider the mortgage payments, maintenance, and insurance. You should aim to have a steady income that covers all expected costs. It is smart to analyze similar properties and their rental yields, vacancy rates, rent, growth rate, and what kind of properties tenants are looking for.

Location

Location is vitally important when considering an investment property. Put yourself into the tenants shoes and consider what they would look for in a home. Give thought to what amenities are near – such as schools, shopping centers, public transport, entertainment, and restaurants. These things will be appealing to a possible tenant when viewing your property. Tenants will also be looking for an area that is safe and comfortable.

Type and Age of the Property

You will want to decide if you are looking for a single family home, a single unit, (such as a condominium), or a multi family complex. This will be determined by your budget, as well as what the rate of return is for the area. Homes with a yard are often more appealing to tenants, but are typically more expensive. Unit apartments or condominiums typically are in higher demand near Universities and lower cost overall. It is important that you understand the demographics of the area and choose your investment based on that. Investment properties usually have ongoing expenses. Older properties tend to have more maintenance needs and you do not want to have a property that is a constant drain on your finances. The condition of the property is very important to analyze prior to buying. You can do this by hiring an inspector to ensure the home/property is sound. You should also consider the depreciation rate of the property and its contents.

Property Features

Think of the property as if you are looking to live there. What special features does it have that will make you want to live there? You will want to look for these features in your investment properties. Things like fenced in yards, garages, home offices, and extra bathrooms, not only raise property value, but will spike potential tenants interest! 

All in all, there are many factors to choosing a home or property to rent out. The goal is to make a profit!  It  is crucial that you make these decisions based on facts and not feelings. Consider the points above to help you in your search for a profitable investment!