Investing in real estate can be a wise financial decision, but both new and experienced real estate investors understand the importance of selecting the right property to invest in. The fact is that everything from the price you pay for the property to its condition, its desirability to potential tenants and other factors can affect your profitability from your investment over the years. If you want to maximize your profits from your real estate investment, you do want to follow a few key tips as you make your selection.
Develop a Strategy
Some real estate investors are selecting a property largely for long-term gain from appreciation, and others may be looking for a property to generate regular cash flow for them on a monthly basis. While many investors want to enjoy the benefits of both income generation and value appreciation, most have a strategy in mind that focuses more heavily on one area or the other. Understanding why you are investing in real estate can help you to make a better buying decision.
Learn More About the Local Area
Ideally, a real estate investor will purchase real estate in an area that he or she is intimately familiar with, such as in an area where he or she has lived in for years. However, there are many great real estate markets across the country that may offer more attractive benefits for an investor. When an investor is selecting a property, it is imperative that he or she learns more about the past history of the area as well as factors that may affect the property in the future. For example, large real estate investments, plans for new employers to move into the area, enhancements to infrastructure and more should all be considered when an investor is selecting a market or community to invest in.
Be Knowledgeable About the Property Type
Real estate investors are able to select from a wide range of property types to invest in. For example, an investor can purchase one single-family residential home to lease out to a tenant, an entire apartment complex, a retail strip center, a restaurant building or any number of other properties. Investors should understand that each property type has its benefits and drawbacks. For example, a single-family home may be more affordable to purchase than an apartment complex. However, when one tenant moves out of the single-family home, the property is generating no income at all. When one tenant moves out of a large apartment complex, there still may be dozens or hundreds of other tenants who are paying rent to generate income. Some property types may also be easier to find tenants for. For example, it can be easier to find a new tenant for a retail strip center than for a special purpose property like a restaurant or car wash building.
Explore Financing Options
It is important to note that commercial real estate lenders offer different loan programs for different property types. Residential and multi-family real estate is generally considered to be the least risky of all investment properties, and this is followed closely by multi-tenant office and retail buildings. Single-tenant commercial buildings and special purpose buildings are often seen as the most risky to lend on. Better rates and terms coupled with a higher loan-to-value may be extended on the less risky properties.
As you can see, there are many factors to consider as you select the right property to invest in. When you spend time exploring each of these points more carefully before you begin reviewing specific properties, you will be able to pinpoint the ideal property for your investment objectives with greater ease.