The decision to buy an investment property can provide you an investment potential that includes cash flow, capital gains, or both. But before you go out and buy the first property you find, consider some rules about selecting your investing in real estate. The following tips are to help you buy a profitable investment property for your portfolio.
Consider a Fix and Flip Versus a Rental
As a property investor, there are two main types of investment opportunities. The first is to buy a house, fix it up, and resell it for a profit. This type of investment requires you to buy a property at a discount because it needs repairs. The repairs and the cost of the home, including the mortgage payment holding costs, should be less than what you can eventually sell the property for. When you sell the property you make a profit.
A second type of investment strategy is to buy a property to put on the rental market. This type of investment also requires you to analyze the property's potential for profit. The cost of the property's mortgage payment and other expenses should be less than what you can rent the property for. And later on, you may choose to sell the property when its value increases, allowing you to cash in on capital gains.
Investigate the Market
Before you can buy an investment property, you also need to do some checking around with the real estate market and its condition. It is a good idea to make sure the market you will be looking at is not overwhelmed with properties and over-saturated because this can be a problem if you are considering buying a property to fix up and resell. When there are too many properties for sale, the demand is lower and your property is likely to sit on the market for a time and not sell quickly as you need.
Look to buy a property in a market that has some homes for sale but not too many. This provides you with a market in which the demand for homes is greater than the supply, allowing you to sell your property once you have fixed it up.
If you are looking at buying a rental house, you should look to investigate the amount of rent the rental market allows. The rental rates can vary depending on neighborhoods and the size of the property. For example, a property that is a three bedroom two bathroom home may sell for a lot more in one neighborhood than it will on the other side of the railroad tracks.
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