An investment property is a great financial decision, bringing in extra income with minimal effort on your end once everything’s squared away. However, in order to ensure that you’re going to get the return that you’re looking for, we’ve outlined our top three factors to make sure you check out before making any decisions.
- Focus on Location
While you will be able to renovate and change many aspects of a home, you’re stuck with its location. Thus, it’s important to consider the location over the actual inside of the home to ensure that you’ll be able to recoup any renovation costs down the line. While this may sound counterintuitive, you’ll be able to easily fix asphalt roof shingles or transform a kitchen into what you know renters will love with the relatively minimal quartz countertops cost. If the plot of land isn’t conducive to vacationers or isn’t in a competitive market, you could find yourself at a loss down the road. The location will also determine what your maintenance costs are going to look like, such as if there is a large yard that’ll require regular landscaping or a pool that’ll come with its own costs. If you’re eyeing a vacation rental property, also consider if it’ll need a property management service year-round as well.
- Make Sure You’re Financially Prepared
An investment property is a large financial commitment, so you want to be sure that you’re prepared not only for the initial purchase itself, but additional costs that’ll likely come at you throughout the process. Real estate professionals refer to the “1% rule”, a rule that says you should expect to earn 1% of what you paid for the property every single month in order for it to be a good investment in the long run. The price of the property should include the projected costs of whatever renovations you’re expecting to have to make to the property.
Furthermore, consider the expenses that are going to be recurring and can add a pretty penny to the purchase price of the property. Consider property taxes, insurance, HOA fees, and property management expenses you might need to add if you’re going to be doing a vacation rental property. Also make sure to prepare for repair costs, changes to the local economy, or potential raises in property taxes. While it’ll, of course, be difficult to predict the exact amounts upfront, it’s a good idea to have some wiggle room when it comes to your finances.
- Does the Property Have Good Bones?
Many people will say that a house has “good bones”, but what does that mean, exactly?
Well, the bones of the house refer to the foundation, roofing, layout of the rooms, and plumbing that contribute to the value of the house behind the scenes. While a dramatically beautiful kitchen is definitely an asset, if the roof is sinking or the foundation shows signs of distress, this may not be a good sign.
Consider the construction materials that were used and if the foundation is solid. Wood Frame Building versus ICF foundations have their own pros and cons, and brick and concrete are generally regarded as safe bets. The roof is another place to look, as having to replace the roof can bring an unexpectedly huge cost. Make sure that the roof isn’t cracking or sinking in any spots; if it looks like there’s been minimal wear and tear, that’s a great sign.
An investment property is an exciting financial decision that’ll bring you great benefits in the long run if you play your cards right. By focusing on location and the bones of the house while carefully considering your finances and how much house you can truly handle, this property can be earning you passive income in no time!
Matt Lee is the owner of the Innovative Building Materials blog and a content writer for the building materials industry. He is focused on helping fellow homeowners, contractors, and architects discover materials and methods of construction that save money, improve energy efficiency, and increase property value.