Determining the Right Investment Market
Being successful in real estate takes more than just simply buying turnkey real estate properties. It is a process, one which relies heavily on several outlying factors such as research, patience, market trends, and—perhaps most importantly—location.
Before you even begin to lie down any money, take a step back. It is vital to take some time and determine which market is the right match for your particular investment goals. What you want to gain from the property and when you are looking to profit can have an influence on which market you choose to invest in, especially if you are looking to purchase strictly as a cash flow property.
So, how do you go about determining which is the right investment market?
Before you can make any decisions regarding where you want to invest, you need to determine how and why. Rental home investment is a different beast than buy and sell, for example, and the markets in which each type excels in are different.
Determine whether you are looking to gain a short-term boost or a long-term continual cash flow will help you in selecting which market to invest in.
Determining whether you will be utilizing a property management company or not will be another factor involved in selecting your market. If you aren’t going to hire a third-party management company, you will be limited to local markets as it is important for you to be within driving distance of your property.
If you opt to use a property management company, your options for investment markets open drastically as you can purchase property in any viable market.
Once you have decided on your goals and whether you are going to hire a property manager, you can begin to look at the bigger breakdowns on the markets you are interested in. One important factor, particularly if you are investing in rental home properties, is to look at the job growth of the area. If the job market is weak, how are your tenants going to be able to provide a regular income in which to pay rent with? If you are flipping the property—buying low, renovating, and reselling much higher—how are people going to purchase a substantial property without a steady job?
Job markets are great indications of property values, too. Keeping an eye on whether an area has a strong job market or not will give you an idea of whether property values are going to rise or fall in the near future.
When looking at a market for rental home investments, you want to verify some additional information which may affect your overall return on investment rate. Even if the purchase price is low, there are several outside factors which can factor into your monthly cost output, which in turn will shrink the profits you are able to discern from the property. These factors include property tax rates, property insurance rates, and municipal landlord taxes.
Another important regulation to check into is the landlord-tenant laws of the area. Even if the market seems to be financially sound, if the laws are tiered toward the tenant drastically more than the landlord, you may find yourself in a very expensive pickle down the road if you have any legal complications with a renter.
Once you understand what you are looking to get out of a property, determining the market is the next big step in moving forward in the real estate investment industry. Always do your due diligence and opt to purchase a property in an area that aligns with your investment goals. When in doubt, consult an expert in real estate investments. Don’t act on impulse—invest wisely!