Buying an investment property is a big deal — and it’s not a decision you should make lightly.
Whether you’re looking to fix and flip a property, rent it out to tenants, or turn it into a vacation or short-term rental property, a thorough evaluation of the home will be key (at least if you want to make a profit).
Are you thinking about buying an investment property this year? Want to make sure your ROI is worth the work? Take these seven steps before you buy:
1. Understand your market.
You need to have a good handle on the local real estate market before making any investments. Are home prices trending up or down? How quickly are properties selling? How is demand and what types of properties are popular in the area? You’ll need this information to not only find the right property but also to gauge how much to offer for it.
2. Have the right resources.
A great investment property isn’t found by going it alone. To make the best decision, you’ll need a little help along the way — help from data (both market-level and property-level), as well as some industry professionals. Namely, you’ll want an agent to help you evaluate a property’s worth and a contractor to assist with estimating repairs and their associated costs.
3. Research, research, research.
Once you have a potential home in mind, you’ll need to do a deep-dive into research. Pull property data to learn more about the home’s history (this is especially important with bank-owned homes and foreclosures), as well as things like local property taxes, flood risk, and school quality. The more you know about a home, the better you can gauge its worth (both now and once you’re ready to sell or rent it).
4. Bring along the pros.
Before you buy a house, bring your agent and contractor on a tour of the property. Does the agent think it could be marketable with local buyers or renters? After what upgrades and at what price? Have your contractor look out for anything that might be in need of repair, and then ask them to work up a quick estimate of what those repairs might cost should you buy the house.
5. Drive the neighborhood.
Don’t forget to evaluate the neighborhood, too. Drive around, take in the people and properties, and make sure it’s an area that someone would want to buy or rent in. How busy is it? Are the neighbors friendly and the drivers careful? Is there noise from airports, trains, or traffic? You should also gauge how difficult it is to get to the property from your home or office. This is particularly important if you’ll be heading there a lot to fix up the house or handle landlord duties.
6. Estimate the workload.
Determine how much work the home would be. How many repairs are needed and how long would it take you? Do you have the bandwidth and schedule to take it on? If you’re thinking of renting out the property, what would being a landlord look like? How much time would it take up weekly to manage the property and handle the books? Understanding what sort of commitment you’ll need to make to the home can help you gauge its viability as an investment.
7. Run the numbers.
Finally, make sure the numbers make sense. How much does the home cost and what would you be able to sell it or rent it out for? Would you enough of a return to make it worth it? Make sure you factor in repair costs and any expenses needed to furnish or decorate the property (which is crucial with short-term rentals).
Find the Right Investment Property
Are you looking for a low-cost, high-potential investment property? Real estate auctions and foreclosure listings can both be great resources to tap. Head to our foreclosure search tool to start your hunt today.