The Top 3 Things To Consider Before You Choose Your Real Estate Investment Property
Entrepreneurs are, of necessity, visionaries. You see opportunities where others see difficulty (or nothing at all), and your eyes are always open for the next innovation or investment.
So what if there was an investment you could make that would pay dividends while you owned it, and then provide a capital gain if you decided to sell it? What if that same investment provided huge tax deductions? What if you could increase your estate while someone else pays off the mortgage?
There are a lot of benefits to investing in real estate. Like all investments, there are risks involved, but if you know what you’re getting into ahead of time, you can make a profitable decision.
Here are three things for an entrepreneur to consider before choosing a real estate investment property:
1. Money Out vs. Money In
No one ever invests to lose money. However, if you underestimate the amount of money needed to keep the property running, that’s exactly what will happen. You don’t want to price your rental out of the market, but you’ll need to allow money in your budget for routine maintenance and upkeep as well as utilities. You should also have something set aside for any serious issues that may arise.
Consider possible expenses like:
- Landscaping – Will you need to hire landscapers to routinely cut grass, weed flower beds, trim bushes, etc.?
- Snow Removal – Will you hire a snow plow for a long driveway or parking lot in the winter?
- Utilities – You will need to cover electric, gas, water and sewer, and garbage.
- Routine maintenance – Roofs eventually need repair and siding eventually needs replacement; windows break and appliances fail.
Keep the “50% rule” in mind: You should expect to spend 50% of your monthly rental income on incidentals.
You’ve heard the old saying about, “Location, location, location.” Property is all about location so choose it wisely. The return on investment is higher when you rent out a home in a middle class neighborhood or an apartment in the city, as opposed to an expensive home in a high-end neighborhood.
Another consideration is the type of renters your location will attract.
- College Town? – There’s a great opportunity there as students and teachers are always looking to rent, but what about in the summer or what if a party goes amuck?
- Suburb? – A suburban area near a train station can provide terrific opportunities to rent to business people who tend to move around a lot, or young people who want to be able to get back and forth to work easily but aren’t necessarily looking to buy.
- Military base nearby? – Towns near military bases also provide opportunities for investment. Soldiers and their families move often, and would rather rent than buy.
The important consideration for each of these opportunities is how much income you have the potential to receive for each scenario. Research the median income for households in these areas, as well the as average rent and mortgage being paid.
3. Vacancy Potential
The problem with a seasonal property is that there is the potential for vacancy. If you’re investing in a vacation home that you can rent out when not in use there are going to be large chunks of time when you’re not bringing in any income.
You also have to consider vacancy rates when renting a year-round residence. Your realtor will have information on vacancy rates in your area. Being able to predict if and when your investment property will be empty will help you to plan in advance.
As far as investments go, land is on limited supply and demand is only going to continue to increase. Real estate investment property can be a terrific way to bring in additional income, as long as you know what you’re getting into. Learn as much as you can about the property, the surrounding area, and the market you’re about to join, and you’ll be ready to make a decision that could benefit you and your family for generations.
A Special Invitation
As an entrepreneur, you also know the value of investing your time wisely, so we would like to extend a special invitation for you to register, for free, for Entrepreneurship That’s Built to Last this Friday, June 20. Thaddeus Wong, a creative and successful entrepreneur himself and co-founder of @properties, will join five other expert panelists for this live, online fireside chat that will help you reach your audience, grow your business, and manage the work/life balance to build your dream.