Buying a property can be a great investment, giving you both a short-term return in terms of rental income and long-term gain in terms of value added to the property. Of course, identifying a viable investment property is key to maximizing your return and minimizing losses. If you want to make sure your next purchase is a good investment, remember to consider the following tips…
Choose An Area Which Is On The Up
Most locations have good and bad areas, so you’ll want to identify which town, suburb, city or district is right for you. In terms of rentals, people will have to want to live in the area in order for you to secure tenants and receive a reasonable amount of monthly income. By choosing an area which is safe is, perhaps, one of the most important things to consider when you’re purchasing a buy-to-let property.
To really maximize the growth potential, choose a location which is currently improving or which is set to receive financial investment in the near future. If a major company is relocating to a certain area, for example, it will bring increased job opportunities with it, and this can cause house prices to rise.
Similarly, look out for government investment, well-performing schools and new companies popping up in the area. Whilst these can’t guarantee you success, they are signs of an area which is on the up, and this can only do your investment good.
Look For Growing Markets
If people are leaving a particular location in their droves, it’s probably not a great sign. Whether they’re fleeing because of a lack of amenities, minimal job prospects or reduced local investment, if established families are selling up, it may be hard to find people who are eager to rent or purchase your property in the future.
Researching a location is vital before you buy a property, and you’ll want to check what the local council or state-run organizations have planned for the location too. Checking historical data via census records can also be a great indicator of how the local area is performing and whether it’s continuing to grow.
Areas which have an increasing number of homes and a consistent rise in householders are often a good bet in terms of investment. By examining census records, you’ll get a reliable idea of whether the area is in decline or whether you’ve found a growing – and potentially profitable – market.
Identify Low Vacancy Rates
Although a particular location may have a decent number of residential properties, the vacancy rate is crucially important. Homes which are standing empty could signify deeper problems in the area, and you may find it harder to rent or sell your property. Whilst high vacancy rates can sometimes equal low purchase prices, this doesn’t necessarily make the property a good investment. In fact, buying a home in a location where there is a high percentage of vacant homes is often a quick way to lose your capital.
Experts vary in terms of an acceptable vacancy rate, but many suggest looking for areas in which the vacancy rate is less than 5% of the residential properties available. Furthermore, a vacancy rate which is consistently dropping may indicate an area which is in the process of gentrification, which could indicate there are profits to be made.
Ultimately, the value of a property lies in its potential to tenants and residents. If existing homes are in a good state of repair and are still empty, it’s important to ask why and examine whether you could ever hope to attract a tenant or buyer under these circumstances.
Get To Know The Area
For first-time or new investors, it may be helpful to purchase a property in an area you’re familiar with. Whilst you’ll still need to carry out independent and objective research, your in-depth knowledge could help to steer you in the right direction. If you’re living in Big Sky, MT or residing in Cheyenne, WY, for example, you’re likely to have a good knowledge of the surrounding towns and residential developments. By tapping into this local knowledge, you can increase your chances of identifying an attractive living area, which will help you to secure tenants and buyers in the long-term.
Of course, local knowledge should never replace research, so it’s vital you access reliable data to help you make an informed investment decision. Whilst having a local insight can assist you in finding a suitable investment property, you’ll need to consider your options in light of impartial information and data-driven research too.
Locate A Property Manager
Managing your own investment property can be a lot of work, particularly if you’ve never taken on this type of responsibility before. In order to let out a home to tenants, you’ll need to ensure the property is up to scratch and you’ll also be required to respond to concerns in a timely manner. If a tenant is concerned that an appliance isn’t working or that there is a problem with the gas main, for example, you’ll need to respond swiftly to ensure the property is safe.
For many investors, managing a property on a full-time basis simply isn’t a viable option. Using a property management company can be an ideal way to handle the day-to-day management at a relatively low cost. Whilst still allowing you to make a decent return via rental income, you can rely on a reputable property manager to ensure your property is kept in good order and that your tenants are satisfied.
If you plan on using a property management company once you’ve made your investment, make sure to check whether there are reputable firms operating in your desired location before you make a purchase. You’ll want to use a reliable and experienced management company, so it’s always best to ensure you have access to the professional services you need before you decide to invest in a specific area.
Choosing to invest in property can be an effective way to bring in money and save for the future. Like all investments, however, property prices can go down as well as up, so it’s vital you do your research to increase your chances of making a successful investment and to maximize the returns you’re able to make.