There is currently a high demand for housing combined with a shortage of supply which is pushing up the price of homes in many regions. Homes aren’t on the market for very long and many buyers are putting in offers on homes without seeing them in person just so they don’t miss out on the property. Because prices are increasing, it is important to consider what is valuable in an investment property and no take on too much risk.
Here are a few things to consider when looking for an investment property:
Location
When it comes to purchasing an investment property, location is one of the most important things to consider. Areas with stable or a growing population and job market are likely going to be a good place to purchase an investment property. Also look at the local crime numbers and try to find a place with low crime. Public transit is another factor to consider. There are renters who don’t own cars or prefer public transit and if your property is near public transit, you’ll have more people competing to lease it.
Avoid a fixer upper
Unless you have a lot of experience in fixing up investment properties, or you’re able to do most of the work yourself to keep costs down, try to find properties where only cosmetic repairs are necessary. Avoid properties that have issues with things like the foundation that might not be as big of an issue if it is a personal home you plan on living in long term. Look for a home that might need a few minor improvements like kitchen counters, flooring or improvements in the bathroom.
Look for low cost homes
It might be enticing to try and find investment properties in neighborhoods that are already popular, but low cost homes in up and coming neighborhoods can get you a bigger return on your investment while also taking on less risk. As housing supply dwindles and rents increase, less popular neighborhoods become more appealing, especially for young professionals. Look for trends of where young professionals are moving within a city.
The quality of schools
This may or may not be important depending on the actual property you’re purchasing. If it is a property with multiple bedrooms, the schools will be more important. If you’re looking at a one bedroom home, or a small apartment complex with a bunch of one bedroom units, the quality of the local schools might not be as important. On the other hand, if it is in a college town, a one bedroom home or apartments with one bedroom units can be a valuable property.
Amenities
Are there reasons why a large number of people would see value in renting in the neighborhood? Look to see what the local entertainment is. Are there a lot of parks nearby? Are there restaurants and bars? Are there bowling alleys and moving theaters? The more vibrant the community is, the more demand there will be for housing.
Future development
Look to see what the city has planned for the neighborhood you’re considering purchasing a property in. Consider any big projects that might increase or decrease the value of the property. Many cities are looking to improve public transit and the safety of bike lanes and have those infrastructure projects in their long term plans. Those types of improvements can increase the value of your property.
Average rents in the area
Look around at a few rental properties that are similar nearby. Find out what the average rents in the area are to make sure that you’ll at least be able to break even initially. Consider all the costs that go into owning and maintaining a rental property, and compare that to the average rents in the area. Also look into how fast rents are rising in the area to try and project what kind of return you’ll see long term.
Natural disasters
Some natural disasters are unavoidable when it comes to purchasing a home. There’s not much to consider in a state like California when it comes to earthquakes, unless you’re looking at a property that is on a faultline. One that is vital to consider, especially in California, is the risk of wildfires. The farther away the property is from large metropolitan areas, the more at risk it will be for wildfires.