Making a profit in real estate investment is more complex than buying a property and collecting rent. There are many steps to take along the way to generating revenue, each with unique challenges. From renovating your investment property to finding good tenants, there’s quite a lot you’ll need to do before the money starts to roll in. But you’ll need to find the right property before getting to that.
Not all properties are created equal when it comes to generating revenue, and you’ll want to find one that maximizes your potential for a return. Here are some of my best tips for finding a profitable investment property:
Define Your Investment Goals
When building a real estate investment portfolio, you should have set objectives in mind for your finances and future. Before you begin looking for an investment property, take the time to define these investment goals. Are you looking for a short-term or long-term rental property? Do you want regular rental income, long-term appreciation, or a combination? By setting clear objectives, you can better filter potential investment properties as you search.
Location, Location, Location
Any REALTOR® worth their salt knows location is the backbone of any real estate property, especially regarding profitable investing. Walls can be painted, floors can be changed—you can even go so far as completing an entire remodel to make a property better. One thing you can’t change, though, is its location.
To find the most profitable investment property, you’ll want to search for properties in good locations with strong growth potential. Factors you’ll want to consider include amenities, transportation, schools, and employment opportunities. You may also want to ask your experienced local REALTOR® about any potential development plans for the area that may affect the property’s long-term value. These factors are all things quality tenants will look for in a rental property, helping you to secure your investment better and make more money.
Know Your Market
Analyzing and staying current on your local real estate market is vital to making a profit in real estate investment. Market reports help you better understand current trends, vacancy rates, rental demand, and property values—all of which influence your profitability as a real estate investor. These statistics can help you to look for properties in areas with demand and projected value growth for the future and eliminate riskier opportunities where fluctuations and vacancies are more likely. Then, with this to guide your neighbourhood search, you can research the local rental rates to ensure they align with your investment goals.
Not sure how to interpret real estate market statistics? Find an experienced local REALTOR® knowledgeable in real estate investing to help you interpret and apply the data to fit your needs best.
Calculate Revenue Projections
Before buying an investment property, you should always forecast the potential cash flow you can expect. Look at both the projected rental income and any expenses you can expect, including property taxes, insurance, and maintenance. By subtracting the operating expenses from your rental income, you can calculate your potential net operating income (NOI). If this number doesn’t align with your goals or isn’t above breaking even, you’ll know it’s not the right investment property for you.
Evaluate the Property’s Current Condition
A well-maintained property will attract more quality tenants and demand a higher rent. When looking at potential investment properties, evaluate their condition and estimate repair or renovation costs. Improvement costs can add up quickly on the wrong property, costing you more than you may have anticipated before you begin turning a profit. A profitable investment property should always generate a healthy return on your investment, not a loss.
Do Your Due Diligence
It is always better to be safe than sorry in real estate investing. Before making an offer, ensure you thoroughly understand the property you are considering. Have a property inspection performed by a trusted professional and get them to review the report with you in detail. Review any and all documents provided to you and verify any claims the seller has made. You can then weigh the pros and cons of investing in this property and how they could affect your portfolio’s bottom line.
Investing in real estate will always come with risks and challenges. By taking steps to mitigate these before getting started, you can maximize your potential of finding a profitable investment property and generating revenue. Do your research, set your objectives, and seek the advice of an experienced, professional REALTOR® when needed. Then, sit back and (hopefully) watch the money roll in.