How to spot a great real estate investment

How to spot a great real estate investment

With the eternal flow of home makeover and relocation programs that pepper our TV networks during the day, it should come as no surprise that at some point in our lives many of us have thought about becoming a landlord and purchasing an investment property.

Choosing to dip your toes in the real estate market and acquire a property with the sole intention of renting it out can be a wise bit of investment, but only if you’ve done your homework and you’re aware of the pitfalls and obligations as well as the money making potential.

When investing in real estate is a good option

If you’re planning for your future, or simply dream of giving up your day job to build a property portfolio, then investing in real estate could be a great idea.

Buying real estate can feel a much more tangible option than putting your hard-earned cash into stocks and shares. However, it is important to understand that, just like the NASDAQ, the value of bricks and mortar can go down as well as up. 

You will need to be happy and comfortable with tying your money up for long periods of time and acknowledge the fact that although the rental income that you’ll receive may pay for any borrowing that you’ve taken out, in the longer term, it may not actually make you a profit. 

Understanding what’s involved

Having enough cash to afford a down payment is one thing, but mortgages mean that, just like your prospective tenants, you will have financial obligations to meet each and every month. 

Investment properties come with their own costs in terms of time and money to keep them maintained, compliant with legislation and, of course, occupied. 

Experienced real estate professionals like Will Obeid of Arcade Capital LLC have built up their portfolios by focusing in particular sectors that they have a deep understanding of. If you’re just starting out, concentrating on what you know will be one of your greatest assets.

Location, location, location

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Trawling through listings can be time-consuming and overwhelming, but there are a few key questions you should ask yourself that will instantly hone your search for the perfect apartment or house down to a far more manageable remit. 

As with buying or renting your own home, the location can be the key to everything. However, just because you like an area, it doesn’t necessarily mean that it has potential. For instance, a quick bit of homework can ascertain whether there is a demand for rental properties there or if it’s somewhere that people generally prefer to buy in. 

A great prospect is somewhere that has easy access to transport links as many people who rent will want a quick and easy commute to work with a range of local amenities on hand. Being in close proximity to coffee shops, restaurants and bars is also a good plus point, especially if you’re looking at one bedroom apartments for single people. Conversely, if you think you’ve found the ideal family sized home, checking the availability of good schools is imperative.

Size matters

Traditionally speaking, one- or two-bedroom apartments make for the best real estate investments and gain good rental yields over a long period.

To really appeal to friends looking to rent somewhere together, a property with bedrooms that are roughly the same size is something that you should always look for. 

Your bottom line

Getting ahead of the crowd and establishing strong contacts with local developers and realtors will increase your chances of finding and securing the best opportunities.

They’ll be able to let you know about upcoming newly built complexes and condos that are coming to the market. These can be great investments as they generally won’t require as much maintenance as older apartments or buildings. Always check what’s included though as parking, on-site gyms and a concierge will always be attractive to potential tenants – but they will add to your overheads. 

What type of investor are you?

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If you’re looking for a long-term investment and don’t want the hassle of finding new tenants on a regular basis, then choosing a smart, contemporary and centrally-located apartment will attract professionals. 

However, if you’re time-rich, cash-poor and good with some basic DIY, a lower value property that’s in need of some updating can be the perfect choice in college cities with a big student market. 

The math

At the end of the day, you ultimately need to make sure that the figures add up.

Before you even make an appointment to check somewhere out take a moment to do your math. Take the advice from your realtor on what your expected monthly rent return would be and multiply it by twelve for the year. Divide the total by the purchase price, and you’ll have what they call in the trade your expected yield for any particular property.

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