When it comes to investing, there are numerous options available to today's investors. Despite the wide range of choices, real estate remains a valuable asset that has earned the trust of billionaires worldwide.
So, if you're interested in investing in real estate, what should you consider? How can you ensure you get a slice of the proverbial pie? In this article, the knowledgeable team from Rent Easy will discuss the essential factors that every investor should consider when embarking on their property investment journey.
Selecting the right location is arguably the most critical factor when considering real estate investments. The value of the property, both to you and future tenants, is heavily influenced by its location.
Prospective renters often prioritize access to transportation, amenities, services, green spaces, and other public and social facilities when looking for a rental property.
When evaluating a property's location, it's crucial to consider the potential evolution and development of the surrounding area. Familiarize yourself with the zoning laws and ordinances to avoid any surprises in the future.
For instance, a large green space behind the property may eventually be zoned for light industry, reducing demand and potentially lowering the property value over time.
If obtaining information from city hall is challenging, seek guidance from real estate professionals, such as a property manager, who can provide valuable insights and advice.
Appraisal of the Property
Property appraisal is a crucial process in real estate investment. It provides valuable insights into neighborhood dynamics, variance with listing prices, and is necessary when seeking financing from lending companies.
It's essential to be familiar with the three common valuation methods:
- Sales comparison approach - this method considers recent sales of comparable units in the area. The appraiser will make adjustments to ensure that the comparables match the characteristics and features of your property.
- Cost approach - this approach breaks down the value of the land into two components: the land and the development. The land uses the sales comparison approach, while the development component employs the depreciated replacement approach, accounting for physical wear and tear.
- Investment/income approach - this method applies to rental properties generating monthly/quarterly income. The appraiser uses an applicable cap rate to convert the stream of rental income over the property's life into a single value. It's crucial to contact a registered and experienced appraiser for the process.
Depending on your investment goals, there are different options that are available to you. Some of them have been highlighted below:
- Self-use. It might be that you are looking for your next home. You can save on rent expenses as you enjoy living in a good location near to quality amenities and services. Later on, when the timing is right, you can sell it off.
- For rental use. Renting out your property is the most common form of real estate inveesting that promises an investor regular rental income, as well as value appreciation. However, the quality of management will determine the ultimate success of this choice. While you could become a DIY landlord, consider hiring a property management company to ensure your property reaches its maximum ROI potential.
- House flipping. If you are looking for short-term returns in real estate, this is one of the viable ventures. You purchase in a more affordable area or one that is being auctioned at less than market value, make repairs and renovations to add to its potential listing price, and sell it off with a considerable markup. House flipping comes with a high risk but, should you play your cards right, can also come with a sizeable return
Income Stream and Profit Margins
While there might be different goals for property investment, its success ultimately depends on rental income and potential profit opportunities.
For rental properties, you will be looking at an accurate assessment of rental rates as well as a review of rent over the years to match inflation and cost of living.
House flipping gurus will be looking at the net profit after removing the cost of renovations to the property.
Here are various projections that you should be calculating:
- Flow of rental income taking into consideration occupancy and management expenses
- Tax calculations and possible tax advantages as a property owner
- Analysis of sale vs. long term leasing to tenants
- Analysis of using mortgage vs. equity.
Apart from the selection of the ideal property type for your next big investment, you must also consider how to go about the issue of property management. Management needs to be comprehensive and tailor-made to meet the exact needs of your tenants. This way you can be guaranteed of 100% occupancy and a higher ROI.
For investors looking to invest in the Hampton Roads, there is no better company to rely on for property management than Rent Easy. We are a full-service property management firm with years of practical experience.
Our team is in charge of managing dozens of properties which include single-family residences, multi-unit rentals, and luxury homes.
Set yourself to enjoy maximum returns from your property by relying on property experts from Rent Easy. Contact us today and you will receive a FREE quote.