While reading a book, journal or magazine article about real estate investing may instill a sense of
motivation for an individual to jump into the market, important research must be done to ensure your venture is worth your while. Buying a home, renovating it to meet aesthetic and safety standards, and putting a tenant in the property seems simple enough, and it really can be! Having a general game plan, with a system to handle the variables that will arise in the lifecycle of your investment is crucial to a profitable experience. Knowing market trends, popular neighborhoods, and the use of a reliable tenant screening system will keep your investment property performing the way you intend it to.
Location of your investment property is of upmost importance, as many other factors will most usually fall into place following this important step. Homes in neighborhoods with high rental demand, close proximity to schools, and in cities with well established and dependable public services often make the best investment properties. It’s important to note that the vacancy rate and population density of a neighborhood both have an impact on not only the likelihood of finding a tenant, but also the monthly rate you’ll be able to receive from the tenant.
Additionally, one must always take into consideration the type and amount of city permits required to consider a home “move-in ready”. Some cities require annual inspections/permits to maintain a home, while there are cities more lax in their safety requirements, requiring only the minimal one-time type certifications. It is up to the investor to decide the amount of contact with city personnel they expect to have over the course of their investment. Also of importance is the “days on market” of the home you’re interested in. If the home you hope to utilize as an investment property looks like a fantastic deal, but has been in the market for years and years, there may be some fine print you need to look into!
Investment properties most often require some sort of renovation. Renovations may involve a simple layer of paint on the walls for a fresh look, or can be as extensive as stripping a home down to the studs. The management of your investment home renovation should always include a primary walk-through, by a trusted and well seasoned construction team. This is to address any known issues, along with the hidden problems that the average eye cannot recognize.
Securing bids to do the renovation work, from various and unconnected construction teams ensures all repair points are covered, at a competitive price. Aesthetics are as important as safety and longevity; you don’t want to burn all your profits on constant updates and repairs. Ensuring that your construction team is experienced, will help avoid unnecessary future maintenance on your investment. Furthermore, checking up on the contractors, or sending a 3rd party for a “surprise visit” during renovation will help to ensure that all work is done professionally, and no shortcuts that could compromise the structural integrity of your property have been done.
Following the initial construction work and city certifications on your investment property, it’s time to find a tenant! Assuming the right homework has been done, you should have the ability to choose between several parties. Finding a tenant who will respect and maintain your investment home is paramount; as the wrong tenant can set you back thousands of dollars in repairs due to reckless/careless living habits.
Background checks, history of previous landlords, and authenticated proof of income for a tenant helps to screen out individuals who may not be able to afford, or take care of, your investment home. Moreover, if you have the ability to interview the tenant in their current living space, this will most accurately display how they may treat your investment property, if they were to move in. Being nonchalant, friendly, and inviting to potential tenants secures a respectful foundation for a professional relationship, not to mention a profitable.
Property management companies do a great job at maintaining your rental home, but it’s important to find a company that fits well with your goals and expectations. Some companies will go the distance to collect rent, respond to maintenance calls, and provide security for your rental home, while others will simply ensure an on-time rent collection. If you are investing in properties across the country, it’s important to develop a close relationship with your property manager, as they’ll most likely be your only remote ally. A property manager with a good eye for detail, and a proven track record will keep you in the loop about the status of your investment property, along with possibly providing connections that may help you grow your single investment project into a multi-home venture.
Due diligence in the business of property investments goes further than relying on limited resources to help turn your investment property to a cash cow. Always know the value of the property you intend to purchase, as market trends fluctuate, so use that to your advantage to get the best deal possible. There are many moving parts in the machine that is “investment property”, but with the right team, and a solid game plan, the possibilities are endless. Established screening systems for neighborhoods, renovation crews, tenants and even property management companies will help you, the investor, capitalize on your money. Under no circumstance should you feel alone in your venture, and if you do, it’s only because a part of your team is not pulling their own weight.
Knowing the level of possibilities that your investment property can perform at is as important as any factor in your investment. Putting together a team of trusted colleagues, with a diverse skill set will keep your investment’s lifecycle smooth and profitable. Once the right system is in place, success only depends on keeping on the course.