Interested in real estate investment? Many choose to buy an investment property because real estate lets your money grow with limited risk. But, if you’re a first-timer, you’re likely wondering what to look for in an investment property.
It’s never a good idea to buy a home and hope for the best. To help you make the best possible decision as you look for the right real estate, here’s a look at what to look for in an investment property.
- Take Advantage of Discount Season
First things first: It matters when you buy your investment property. The best times to look at the market are fall and winter. You’ll have fewer options to choose from, most likely, but you’ll be looking at prices that offer a 3–5% discount.
The market is churning in spring and summer. Kids are getting out of school, and families want to move before the next school year starts. There’s no reason for sellers to offer any sort of discount when demand is at its peak.
But, in fall and winter, demand is low. Anyone putting a home on the market during these down times is likely a motivated seller — and one who will be willing to give on price in exchange for an accelerated closing.
- Choose Small-Scale Fixer-Uppers Over Large-Scale
There’s nothing wrong with choosing a fixer-upper as your first investment property. In fact, you can often find better value when you choose a fixer-upper over a home that is move-in ready.
But look for small-scale fixer-uppers rather than large-scale fixer uppers. For example, look for properties that need new flooring, a fresh coat of paint and perhaps a few new appliances and fixtures. Pass on larger scale projects that will involve fully renovating kitchens and/or bathrooms, as well as homes that will need reconfiguration of walls and layout.
As you get more experience, perhaps you’ll feel more comfortable with a large-scale renovation project. But, as you get started, take on more manageable projects to reduce risk.
- Consider Neighborhood Characteristics
Location should be one of your top priorities. You want to keep your property occupied with reliable, trustworthy tenants, and reliable, trustworthy tenants are looking for properties that are close to:
- Restaurants, shops and other amenities
- Potential employers
- Public transportation
- Quality schools
- Hospitals and other health care centers
Also, make sure your rental property is in a safe neighborhood. You can seriously undermine your investment by purchasing a house in a high-crime area.
- Appreciation Potential
There are two kinds of returns you enjoy through real estate investment. First, there’s monthly cash flow. After you pay the mortgage, interest, taxes and insurance (plus maintenance and repair costs), how much do you have left over? But, more importantly, there’s also the long-term return you enjoy upon resale.
So look for an investment property that you can see appreciating over time. Look at up-and-coming neighborhoods that are warming up but that haven’t quite become “hot.” If you need a little help in finding neighborhoods on the rise, look for areas where there’s lots of new development planned — new apartments, new shopping centers, new entertainment venues, etc.
- Lower Taxes
The Dallas Fort Worth area covers dozens of different municipalities and several different counties. Take a close look at the taxes applicable in a property’s specific location before you close a deal. Moving from Collin County to Dallas County or Tarrant County to Denton County could significantly change what you pay in taxes. The same holds true moving from city to city — make sure you understand the change in school-related taxes as you search in DISD vs. Richardson ISD.
And, finally, make sure you understand how homestead exemptions work. Texans get a tax break on the property designated as their “homestead,” which won’t apply to your investment property. Do your research and calculate how much more you’ll pay in taxes for a rental home.
- Favorable Market Rents and Conditions
Always look at the market rents and conditions, too. Look at a potential investment property’s price, and then calculate how much rent you’ll need to charge in order for the deal to be profitable. Does that rent amount align with other rental rates in the area? Does that rent amount offer prospective tenants a good deal when compared to actually buying a home in the area?
Some investors are willing to absorb small monthly losses in order to achieve a significant long-term return. But it’s nice to have a monthly cash flow in addition to the return you’ll get upon resale. Do the math and research, and find an investment property that can offer you both.
Find a Quality Property — Then Find Quality DFW Property Management
Now that you know what to look for in an investment property, it’s time to think about day-to-day management of that property. You can do it all yourself, processing your own payments and handling maintenance and repairs on your own. But wouldn’t be nice to find a provider of property management in Dallas and Fort Worth that can make your life easier?
At HUNTAHOME, we are the leading provider of property management in Fort Worth and Dallas. We can provide expert guidance when you need to know what to look for in an investment property, and we can also make sure you get the most out of your investment after the purchase.
Contact us today to learn more about our DFW property management services.