Getting an investment property can be stressful, especially when it is your first time buying.
The best way to make sure you get a good return on your investment is to purchase a safe property that can be easily managed.
A safe investment should be the number one priority because it will mean far fewer headaches and a bigger return. If possible, look for something that has been built in the last ten years. It’s also beneficial to get something with an HOA that can offer built-in extras for renters, like community pools, parks, and trails.
If you’re wondering how to choose the correct property, here are the most important real estate investment questions investors should ask, answered by an expert.
Real Estate Investment Question # 1: Will I Be Cash Flow Positive on This Purchase?
This is probably the top question you should ask when purchasing a property: Will this property make money?
This can best be determined by figuring out what your total expenses are versus the amount of money you can safely expect to make from your property. Your expenses include repairs, property management services, vacancies, maintenance, taxes, insurance, and your mortgage expenses if you’ve taken out a loan.
If your revenue is above the cost of your expenses, then you can safely say that you are cash flow positive.
Even in a down economy, a property that cash flows should continue to make money. In fact, if anything, when the economy takes a downturn, rent often goes up. This is because people don’t have the same easy access to money as they did before. Therefore, even if your property value decreases, you should still make money on your investment.
Additionally, you should not wait for your property to become cash flow positive. If your tenant is placed, there should be a positive cash flow on day one.
Real Estate Investment Question #2: What Will My Property Rent For?
As stated above, without positive cash flow, your investment property will cost you money instead of making money.
Knowing how much your property will rent for is the foundation of a profitable investment and it will determine whether it is a good deal.
You should know at the time of purchase what you can safely expect to collect from your new investment. Without this knowledge, you won’t be able to make a smart decision, and you run the risk of purchasing a property.
Real Estate Investment Question #3: How Do I Make Sure I Collect My Rent?
To make sure you collect your rent, you’ll want to acquire the best possible tenants.
A person with a clean background, high credit score, no negative trade lines, and above the minimum income requirements is unlikely to destroy their credit by not paying their rent.
Even more so, people with these qualifications are usually more responsible even if they do have financial problems. They’re less likely to abandon the rental in the middle of the night and are more likely to work something out with you in the event that they are unable to pay.
Real Estate Investment Question #4: How Do I Find Great Tenants?
The two most important things to a tenant are condition and price.
If a property is in bad shape or overpriced, you’ll likely have a poor choice in tenants. You’ll attract people who have bumps or bruises on their credit, or people who have not been able to find another place to rent. More often than not, these situations do not work out well.
On the other hand, if you have a property that is in excellent condition and priced well, you’ll have quite a few eligible applicants to choose from.
Once you have your pool of applicants, it’s important to screen them. This gives you the opportunity to find the most responsible and qualified tenants.
Real Estate Investment Question #5: How Do I Keep Tenants From Destroying My Property?
One question you should probably ask is how to prevent tenants from damaging your property.
As stated above, if you’ve priced your property well and it’s in great shape, you’ll have a lot of applicants to choose from. This means you’ll have a good opportunity to pick responsible tenants who will be less likely to destroy your property.
When vetting applicants, a good rule of thumb is to think about whether you’d feel comfortable with that person living in your house. If not, you may question if they are a good choice for your rental.
When they’ve passed your qualification standards, you run a much lower risk of having damaged property.
Another thing you can do to ensure that your property is well cared for is routine checks. These can be done every six months or so to see if there is any damage that falls outside of normal wear and tear.
Real Estate Investment Question #6: Where Should I Buy?
LEAP property management currently serves one of the hottest markets in real estate in the US right now in north DFW. We have a proven record of choosing the best locations and work off a well-established set of criteria.
One way to determine where to buy is to look at areas where there has already been success and to stay in those areas. You don’t want to manage something that’s a poor investment because that means a lot of repairs and a high turnover.
Additionally, it’s not only a matter of choosing the right location, but also of whether the property is in good condition and being sold for a good price.
Real Estate Investment Question #7: Is This the Best Time to Buy?
One final question that is very important when considering investment property is whether or not it’s a good time to invest.
In Texas, the real estate market has remained fairly steady, even after the recession in 2007 and 2008. Compared to places like California and Nevada that experienced major swings after the recession, Texas has remained pretty stable.
More important than whether or not the timing is correct, is whether or not the property will give you the cash flow you desire.
For example, let’s say you bought an investment property twenty years ago that had a good cash flow. If you held on to that property through the recession, you would have continued to bring in money even during the down economy when property values dropped. Fast-forward to today, and that property is now worth twice as much as it was in 2008, and has probably doubled your purchase price. Another good time to purchase property is when the values are depressed. If you’re able to buy a property for a lower than normal price, it would be a good time to buy.
The Right Property for You
Hopefully, the answers to these real estate investment questions have been helpful to you.
When you decide to launch into your next (or first) investment property, remember to find a property that is relatively new and easy to maintain.
Using a property management company like LEAP can really boost your confidence because we know the best places to look for property that will offer you the highest cash flow. We’ll continue to help you choose qualified tenants, maintain your property, and ensure that you make the most out of your investment.