Considering an Investment Property?
You have no trouble saving for a rainy day, figuring out who the best CPA in town is, and even
know how to allocate funds in your 401k; but when it comes to selecting a good investment property,
you haven’t got a clue.
Experts agree that a good investment is all about picking the right property. Cash flow, tax
ramifications and vacancy rates are among the factors that must be evaluated if that studio has any
hope of becoming part of a million-dollar real estate portfolio.
Since the purpose of an investment property is to put money into your pocket, first and foremost on
the list of criteria is cash flow. While much has been written on the subject, it is not likely you’ll
establish a positive cash flow right from the start, though it’s not impossible. More realistically,
it might take several years before rental income exceeds expenses.
Finding the Perfect Investment Property For You
One of the fundamental elements to look for in an investment property — that can affect cash flow
positively — is upside potential.
Defined as the amount of upward price movement anticipated, finding a property that, for example
needs cosmetic work like paint or new carpet, can be a pivotal factor in increasing the rate of return.
Other physical characteristics to consider — and to inspect — before you buy are the condition of the
electrical, plumbing and the roof. Because these items can be costly to repair, it is critical to have
them checked thoroughly by a property inspector and know their condition up-front.
On the flip side, a newly constructed or recently renovated property will likely have few major repair
items and offers an extended period of low maintenance costs. Your Prudential Locations Realtor is
specially equipped to help you sort through these investment options.
Bottom line: Crunch all the numbers. In addition to knowing the condition of the building, you must
also know the maintenance fees, real property taxes, gross excise tax, property management fees,
what it will cost to obtain insurance, legal fees and mortgage costs, just to name a few.
Do Your Homework
Get professionals to help you and make sure your calculations are correct — that the amount you think
you can rent it out for is realistic, that you can make the payments even without a renter, that you
can afford it.
A general rule of thumb: think long term. Even though some developers and speculators are in and
out of properties fast, unless you are a contractor or a tradesman with construction skills, the
current market is probably not going to make you a quick buck by flipping properties. But by thinking
long term, you will ultimately put cash into your pocket by reaping both a positive cash flow and