How to choose a real estate investment property
The first decision you need to make before looking for your real estate investment property is about the type of property you want. There are a number of factors to consider before making your decision because each one differs from the other.
In this article, we’ll take a broad look at what to look for regardless of the type you choose, and then look at five common types of real estate investment properties.
what to look for
1) overall location – Location, location, location is the mantra in real estate. Unless the property is located in an area that sustains or boasts rents and in turn can be sold for a profit, forget it.
2) site improvements – Does the property require repairs that could eat into your cash flow, or are there repairs that can be done that would substantially increase your cash flow and yield?
3) The lease form used – In the case of a commercial building, is it subject to a favorable or very unfavorable lease? In other words, are you buying a favorable or unfavorable income and for how long?
4) The income produced – How much income does the income property generate? Is it realistic and can it be sustained? Is there room to increase revenue?
5) expense type – What is needed to keep the property operational? Is there anything out of the ordinary and is there a chance some expenses could be reduced or eliminated?
7) management requirements – Will the property require a professional management company, perhaps a resident manager, or is it something you can handle?
8) Money – Can the property be used? What about the rates and terms that will qualify you and/or the investment property for the best possible loan? What are the loan payments?
9) Depreciation Benefits Available – How much of your income can you defer by depreciating the property?
10) Unique features – Is there anything about this particular investment that sets it apart from other real estate investment opportunities? Perhaps its location, construction, or perhaps it offers great potential for growth.
Types of Investment Real Estate
1) apartment complex – This is the most popular form of real estate investment and can include anything from a duplex to a high-rise. The size and mix of individual apartments are generally tailored to local market demands and typically include studio and larger apartments. The apartments can be rented on a yearly or month-to-month basis. When present, coin-operated laundromats and storage facilities or garages can generate a little additional income for the owner. A well-managed apartment complex can be a very profitable investment and a great way to start for new investors.
2) Office buildings – This type of investment property requires more knowledge than a multi-family property, so first-time investors should be cautious. Office buildings are generally rented by the square foot rather than a fixed price per unit; typically includes a cost for a proportionate share of common areas such as entrances and hallways. Depending on the lease, tenants may also be required to pay a pro-rata share for parking and roof maintenance and, as a general rule, tenants will pay all or part of the cost of finishing the interior of their suite. Office buildings are generally a solid investment and relatively easy to manage.
3) Malls – In many parts of the country, this type of real estate investment is very popular, but as with office buildings, they contain some unique features that an individual investor should be aware of. A mall can mean anything from a couple of stores (known as a mall) to large regional malls. Tenants typically sign a lease and are expected to share the cost of maintaining common parking lots, landscaping, daily grounds cleaning, etc. in what is known as common area maintenance (CAM) charges. Small neighborhood centers with a moderate cash requirement can be a great way for a beginner to get started in this type of investing.
4) Warehouses and Industrial Warehouses – Rental Warehouses provide small to large bays or rooms used for storage and small workshops. They are typically rented on a month-to-month basis, and therefore (because tenants can move at any time) make it one of the less stable real estate investments. Industrial buildings are typically characterized by larger floor space and are typically leased for longer terms to more stable tenants, such as manufacturing plants. The ultimate investment here is a “sale/lease” situation where a major company sells you their building and then rents it back to you on a net basis, but these are hard to find because they are great investments.
5) mobile home parks – This type of real estate investment has become one of the most sought after in recent years because it provides people of retirement age and young couples with housing at a reasonable price. In this case, a parcel with water, sewer, and electric hookups, plus a concrete patio area and tie-down rings is rented to someone who wants to put a mobile home there. Other improvements include streets (which can be deeded to the local municipality, thus relieving the owner of street maintenance), recreational facilities (perhaps with a building), and laundry facilities. Because mobile home parks are affordable and easy to manage, they can be a very good investment.
Entire books have been written on the five ways to invest in real estate and obviously we kept it very short just to give you an idea. However, hopefully it will help your real estate investment strategy.
We should also mention that you should never buy an investment property without doing a complete real estate analysis. Quality real estate investing software makes it a breeze. So be sure to check that it works. Here is your success.