Every buyer wants to get a good deal on every purchase. And the real estate market is no exception to that rule. A good deal on a real estate can mean super savings or profit because of the large price associated with the purchase. Here are some key points to check out to determine if the property that you are looking at is really a good investment.
The first task is to check for zoning issues or liens on the property. These complications can turn a possible prospect into a fast no. Zoning issues and liens can both require some time and money to sort out and that makes these properties far less desirable and possibly far less profitable.
Next, check the 1% Rule. For a property to hold the potential to be a sound investment, the monthly rental income needs to be 1% or more of the purchase price. This should allow you to pay all of the bills for the property including the mortgage, taxes, and insurance and still yield a positive cash flow. If you are concerned about the possibility of a vacancy which would cause you to cover the bills for a month or two, then deduct a portion of the monthly rent to cover those potential issues, but still, keep the 1% Rule in place with the remaining rental balance. Some investors subtract a full 40% of the monthly rent before applying the 1% Rule.
When looking at the property to evaluate your renovation, don’t think like a TV reno personality. Not all renters are looking for upgraded countertops and high-end appliances. Some real people are happy to live in an older home that is clean and in a great location rather than a very secluded but completely remodeled home. Know the market and the neighborhood to determine what is needed for upgrades.
Also, beware of a sagging roofline. This can be a huge expense to replace, and it can also contribute to other expensive repairs. A sagging roof can also lead to drainage issues along the foundation and damage to the interior of the home. If the roof looks worn, either skip the purchase or account for that expensive repair that will add no visual appeal to renters.
Knowing what to look for in a solid property and what a fair market price would be are both critical to getting a good deal on your next real estate purchase. And that good deal could be the launching point for your entire future and financial freedom. Invest the time to make a smart purchase and then reap the rewards.