The Best Things to Look for in a Real Estate Property

No matter what you’re investing in, real estate is always the best bet. Investing in real estate is a great way to earn passive income on the side. If you’re a beginner investor, putting yourself and your money out there can sound risky. There are multiple factors to be unsure about. Where do you start? What property should you buy? How much money do I need? These are all questions you might be thinking. For every aspiring investor out there, here are just a few things to look for when starting out. We’ve put together a list of the four most desirable qualities to look for in a rental property to make the most bang for your buck.

• The Quality of the Property

Depending on the condition of the property, this can mean a couple different things. If you find the property is in poor condition, this can be a great thing for you if your intention is to fix it up and flip it. However, for beginners, you should focus on properties that are generally in decent condition. Make sure they don’t have any major problems; roofing, the foundation, anything that could end up hurting the property in the long run. There are a few benefits to buying a property in good condition as a beginner. First, you won’t need to spend any of your finances on repairing the property. This can be very time consuming and stressful for someone who isn’t familiar with the process. Secondly, buying it in a stable condition means that you can start renting it out as soon as you can. The sooner you do that, the sooner you will have money in your pocket. 

• Look for properties in the best real estate markets

When you picture a good piece of real estate, you typically imagine that property in a desirable location. Being able to ensure a great location for your rental property should be on the top of your list. The market where your property is located will determine the price of the property, the expected occupants, the charging rate, and how profitable you will be. The optimal location will typically be long term rental properties with a strong and secure economy to hold it up. As a beginner investor, you might want to consider looking at other rental markets out of state. Out of state markets can hold better investment opportunities than the one you currently live near. 

Another thing to consider when looking at location is, what is around the property you might be purchasing. Is it close to public transportation? How far away are convenient stores, amenities, etc. You’ll have a lot more possible tenants if the location of your property is located where it’s convenient for them. Be looking to buy something that is at a reasonable price to rent ratio (the average property price/average annual rent). Neighborhoods and cities with a 16-20 price to rent ratio allow investors to find a compromise between demand and rental rates. 

• Start off small

As a beginner investor, I know we all would like our first investment to be a 5 bedroom home with a 3 car garage and an underground swimming pool. However, it might be in your advantage to start off small. If you bite off more than you can chew you will run into numerous problems. Purchasing an expensive property right off the bat can screw with your financial plan and pose issues later in the future. Secondly, expensive real estate will only attract a handful of potential tenants. The likelihood of you finding someone to rent out your property will be significantly more difficult. With an expensive property comes expensive management. It will cost a lot more to maintain and repair that property rather than a less expensive one. 

When buying a first property, it’s best to stick with a property that can easily be rented out, easy to manage and repair, and quick to sell.

• Fair and Cheap

As mentioned earlier, price is a major thing to consider when buying a rental property. The price of the property can determine the ROI of your investment. To put it into layman’s terms, the lower the property price, the higher your return. Ceteris paribus.

For those starting out, cheaper real estate is easier to finance. This is good news for you because it means you will feel less heat from lenders as a first time investor. 

Just like any major purchase, start to search for investment properties for sale. Sit and create a reasonable budget that you think will work with the property. Figure out how much you can spend on a rental property and then map out a financing plan. Be sure to stick to your budget no matter what. Deferring from your budget is a good way to default on your mortgage. 

As a beginner investor, it would be a good idea to conduct a comparative market analysis of the future neighborhood of the property you are interested in. Look at a couple different properties that share similar size and price of the one you want to buy. This will help give you an idea of how much you should be paying for the property. Overpaying too much will cut into your profit.

This year has great projections in the rental market. Start planning for your first rental property in order to reap all the benefits the real estate market has to offer. Make sure to review the four traits to look for in a rental property, and soon you’ll be on your way to a successful investing career. 

By: Mike Oborn