Real estate investing – it’s one of the best, most proven ways to develop wealth over the long haul. But not all properties will necessarily provide you with the return on investment that you’re hoping for. The best way to boost your profits is to make sure to minimize the amount of risk that you face with the properties you buy.
Here are 5 lower-risk real estate properties to look for when you’ve got a hankering for a solid investment.
1. Properties in Averaged-Priced Neighborhoods
When it comes to real estate, it’s all about location. This is no secret. But properties that are located in the most desirable areas (think downtown cores, by the beach, near million-dollar homes, etc) are ones you probably want to avoid, as they typically come with negative cash flows because of the immense amount of money needed to upkeep such properties.
But you also want to steer clear of areas that are as undesirable as they get (think high crime rate, poor maintenance of properties, lack of amenities, and so on). What you want to focus on are properties that are located in areas that are moderately priced, thereby offering positive cash flows. After all, its the bottom line that matters after you’ve deducted your expenses from your rent.
You definitely do not want to be in the red when it’s all said and done. Calculate your potential cash flow by using conservative numbers for both rent and expenses when estimating what type of profits (or lack thereof) stand to be made with a certain property in a specific neighborhood.
2. Condominium Complexes With Healthy HOAs
Many investors look to common interest developments as their source of investment properties, and for good reason. They’re typically much more affordable, tend to be located close to amenities, and require minimal maintenance. However, these types of properties could be littered with landlines if you don’t pick the right one.
Think about it this way – you’re not just buying your unit; you’re buying into a much larger body – the homeowners association (HOA). If this entity is in some sort of financial or legal trouble, it’ll be the owners – including you – who will be flipping the bill. You’d be well-advised to scope the place out before you buy into it.
Check into the health of the HOA, and make sure it’s got enough money in the pot to cover expenses, has no pending lawsuits to deal with, and has plenty of insurance to bail it out of hot water.
3. Properties That Already Come With Good Tenants
If the investment property you come across already has long-term tenants that have been paying on time and are taking good care of the property, that’s a bonus. There’s really nothing better than buying an investment property already equipped with an awesome tenant. You don’t have to market the place for rent, nor do you have to get the property ready for showings. Just make sure that you have a gander at the tenant’s current lease and credit application before you agree to buy the property.
4. Properties in Neighborhoods With Low Vacancy Rates
Watch out for areas with really high vacancy rates. That’s an indication that the turnover rate for renters is high, and so is the competition among landlords.
If you buy into a neighborhood with a high rate of vacancy, it could take forever for you to find a tenant to rent the place out, which will just cost you money covering the costs while the place is empty. Think really hard about buying a property in an area that is notorious for having a bunch of unoccupied units at any given time.
5. Properties That Are in Decent Shape
Unless you’re planning on fixing and flipping a property for a profit, you want to make sure the unit you’re buying is in decent shape. You don’t want to buy a property that requires extensive renovations before renting it out. The more money you spend on reno’s, the longer it’ll take for you to recoup that money from rent checks. More money dumped into a property translates into lower investment returns. Forget about the fixer uppers and focus on properties that are in as good a shape as possible.
Along with real estate investing comes a certain amount of risk. But it can also bring a fantastic opportunity to make sizeable profits and a passive income stream to help you build your nest egg. Buying properties that have as many healthy qualities as possible, and skipping the ones that display one red flag after the next, can help put you in a better position to make some cash while protecting your capital.