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How to Choose an Investment Property

by Editor | ezLandlordForms
how to choose an investment property

If you’re in the market for an investment property, you’re probably excited! Before you start tearing through all the MLS listings, there are a few things to consider in order to make the most of your investment.

Envision Your Renter

Before you do almost anything else, you should envision your ideal renter, since this will inform the rest of your decisions. The possibilities are nearly endless for who your perfect renter will be. Here are a few to consider:

Single-family with school-aged children: If you’re targeting a family with young children, you’d be wise to choose an area with excellent schools. Likely, the family you’ll rent to is prioritizing their children’s education and getting into a great neighborhood, even if they can’t afford to buy a home. Renting to a family will mean you’ll need a property with two to three bedrooms, so you can see how picturing your target renter first helps make so many subsequent decisions.

College students: If you’re in an area with a university or college, this can be a great option. Things to consider for a college renter are whether you’ll provide a furnished unit as this varies from campus to campus. You should also consider if you’ll require a 12-month lease or only during the school months, which may make your rental more attractive but may also mean you’ll have a hard time renting it out during the summer. Student rentals come in all shapes and sizes, from studios to four-bedroom apartments or even an entire large house, and every configuration in between.

Working city professionals: Maybe you’re hoping to have young professionals in the newest up and coming neighborhood as tenants. If this is the case, you’ll want to be in an area near transit, restaurants, and stores, and a thriving economy. The type of unit can vary from a studio apartment to a two-bedroom condo or even a duplex.

Tenants come in all shapes and sizes, and they all have different needs. If you start your search for an investment property by picturing who you’d like to rent to, you’ll save yourself a lot of wasted time pining over properties that don’t make sense for your business needs.

Consider Management for your Investment Property

Once you’ve narrowed down the type of renters you’ll look to attract, you must consider who will manage the property. Will you manage it yourself, or will you hire a property manager or company to take care of the day-to-day? While this may seem like something you can consider later, but you should wait to purchase your property until you’ve decided.

Here’s why if you are planning to manage the property yourself, you’ll need to keep it relatively close to where you live. Things happen with renters. Maybe the tenants get locked out, or a toilet backs up, or whatever number of situations arise, you need to be available to help. So you’ll need to buy a property that is a relatively short distance from your home. However, if you’ll be employing someone to take care of those day to day issues, the possibilities open up.

Choose Your Investment Property Location

Next, you’ll focus your search on a city and state, and ultimately a neighborhood that would best suit your renters and garner a higher rent for you. Then the search for the perfect property can begin!

Things to Remember

Plan on a big down payment: Mortgage insurance isn’t available for investment properties, so a twenty percent down payment is required to get traditional financing. If you’re able to put down even more, that can result in a better rate. Remember, loan costs are typically higher for investment properties than primary dwellings.

Be price-conscious: A critical step in ensuring a profitable endeavor is to buy a reasonably priced property. The guideline for a rental property is to pay no more than 12 times the annual rent you expect to get.

You aren’t living there: It’s easy to get on the emotional rollercoaster of choosing a property. Being picky about a particular finish because you don’t like it is not the smart move here. Remember, you won’t be living here. You need to choose what will work best for your renters, not what you’d like in your own home.

Start smart: In general, the best investment property for beginners is a single-family dwelling or condominium. Condos are low maintenance since the condo association takes care of external repairs, which leaves you only in charge of the interior. Condos, however, do tend to garner lower rates and appreciate at a slower rate than single-family homes.

Whatever property you choose, ezLandlordForms is here to help make your experience as a landlord more enjoyable and more manageable.

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