{"id":3417,"date":"2022-02-14T19:24:13","date_gmt":"2022-02-14T19:24:13","guid":{"rendered":"https:\/\/altoonanow.org\/?p=3417"},"modified":"2022-02-14T19:24:16","modified_gmt":"2022-02-14T19:24:16","slug":"4-things-to-know-about-buying-an-investment-property","status":"publish","type":"post","link":"https:\/\/altoonanow.org\/4-things-to-know-about-buying-an-investment-property\/","title":{"rendered":"4 Things to Know about Buying an Investment Property"},"content":{"rendered":"\n

In the classic boardgame Monopoly<\/em>, buying a property is as simple as dropping a few (fake) dollar bills in the bank, picking up a tiny plastic building, and placing it on a space.<\/p>\n\n\n\n

If only it were that easy in real life.<\/p>\n\n\n\n\n\n\n\n

Much like properties you \u2018purchase\u2019 in the boardgame, a real-life investment property is any property purchased in order to generate income. It can be as simple as a family purchasing a second home to rent out as an Airbnb. Or it can refer to larger-scale investments, such as multi-family residential complexes or business real estate: office buildings, strip malls, retail spaces, or any other commercial real estate properties.<\/p>\n\n\n\n

How do investment properties make money? Often, it\u2019s rent. Much like their boardgame counterparts, investment properties generate income by charging tenants to occupy a space. So long as the income generated by the property exceeds the cost of ownership, the property will be profitable.<\/p>\n\n\n\n

However, staying profitable can be a challenge. Ownership costs include everything from the initial purchasing price to the costs of ongoing maintenance, repairs and renovations, advertising the space, checking credit scores of new tenants, handling evictions, paying property taxes, etc. The costs add up quickly, and some of them are less than obvious.<\/p>\n\n\n\n

Then there\u2019s the down payment. Starting around 15%, down payments of investment properties are often significantly higher than those of other properties, such as single-family homes in which the buyer is also the resident. (Down payments for investment properties are so hefty because these properties are considered higher-risk investments than a personal home. The buyer, it\u2019s assumed, is less dependent on the property; therefore, they are more likely to abandon the investment.)<\/p>\n\n\n\n

Due to the down payment and the often-underestimated costs of ownership, cashflow issues are especially common in the first two years of an investment. If a buyer doesn\u2019t carefully plan their cashflow, they may not have enough (real, non-Monopoly<\/em>) cash left over after covering the initial down payment to cover maintenance, repairs, etc.<\/p>\n\n\n\n

Besides rent, investment property owners can turn a profit if their property appreciates (increases in value) over time. Occasionally, some event \u2013 such as a large employer, like Amazon, moving into the area, or a change occurring in the economy that increases the strategic value of a region \u2013 will cause properties to appreciate quickly, sometimes literally overnight. We\u2019ve seen that recently, with phenomenon like COVID-19, the rise of ecommerce, the dynamic logistics industry, and changes in the globalized economy increasing volatility in the market and causing the value of certain areas to rapidly rise or fall.<\/p>\n\n\n\n

But those quick, extreme changes are still rare. Generally, in communities with strong, growing economies, appreciation occurs over long periods of time, often decades. As new businesses move into the area, residents follow, growing the local workforce and the consumer base. This triggers a positive feedback loop, in which people bring more businesses and businesses bring more people. As a result, local properties become increasingly desirable, and their value increases over time. An owner of a property that appreciates may raise their tenants\u2019 rent to match similar properties in the area, or they may sell their property for a higher price than their initial investment, increasing their overall return on investment.<\/p>\n\n\n\n

There are, as we briefly outlined above, many factors besides location to consider when purchasing an investment property: Do you have the cash to cover the down payment, as well as ongoing maintenance and repairs? Do you have the time, energy, and expertise to run the property yourself, or would you be better off outsourcing that work to a property management company? How long do you plan to hold onto this investment, and how might that determine the properties you consider?<\/p>\n\n\n\n

However, as anyone who has bought real estate \u2013 the real kind or the Monopoly<\/em> kind \u2013 knows, the single most important factor is always location. Where you invest determines what kind of tenants you will be able to attract, how your investment\u2019s value changes over time, and ultimately your return on investment. To invest in real estate is to invest in a community. And choosing the right one can make all the difference.<\/p>\n\n\n\n

With that said, here are four things you should consider when selecting a community for your investment property.<\/p>\n\n\n\n