Buying Your First Investment Property? Three Things That Make A Great Real Estate Investment
Selecting an investment property that provides a solid rate of return is easier said than done. Plenty of people make a mistake with their first investment property. Though an investment property does not necessarily have to meet all of your criteria, you will greatly reduce the odds of buying a money pit or a property that drops in value if you take your time during your property search. Conduct extensive market research, study the nuances of an array of properties and follow the advice set forth below. Let’s examine the three things every first-time investment property buyer should look for in a piece of real estate.
1. Find a Property That Does not Require Extensive Time and Management Commitments
The best investment properties are low-maintenance. If you tie yourself to a property that needs plenty of repairs or requires extensive hands-on management, you will regret it from a personal and financial perspective. A property that requires you to spend an extraordinary amount of time on-site doing everything that is necessary to keep the house habitable will be a detriment to your finances as well as your well-being.
Do not lose sight of the fact that time is your most valuable resource as you can never get it back. Avoid high-maintenance properties like those in impoverished areas of town, college rentals and vacation rentals. Pick out a property that requires minimal sprucing up and infrequent maintenance that can be rented to tenants with decent credit ratings. Such a low-maintenance site won’t chew up your time, patience and money.
2. Look for a Property With a Respectable Cash-on-Cash Return
Purchasing an investment property requires the removal of cash from your savings account, stocks, mutual funds, bonds and other investments. Such investments are quite liquid in comparison to real estate. Most people aim to earn at least a five percent yearly rate of return on investments. Do not accept an inferior rate of return on your first investment property! Perform the necessary research and be patient until you pinpoint a cash-flow positive property that provides a solid rate of return. Avoid so-called “prize properties” that offer no return or a negative return with the potential for a large payout in the future.
3. Mind the Risk
You worked hard for your money. Don’t subject it to an inordinately high level of risk in a boom or bust property. The best investment properties have minimal risk. Though it can be said that all real estate investments carry an extraordinarily high risk, picking out an investment property that has proven to provide a respectable rate of return is always the best choice.
Avoid those tempting high-risk investment properties like fixer-uppers and tenant-in-common investments. All sorts of costly and time-consuming problems can arise with such risky investments. You might even lose a significant portion of your money after performing all of the necessary repairs and improvements across posterity. Though a low-risk investment property won’t have the potential to produce a massive return in the short or long-term, it will generate a steady profit as time progresses. In the end, generating a respectable profit is all you should expect from your investment.