How to Evaluate Investment Properties

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May 8, 2020

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Investors buy investment properties as they provide a way to secure their financial future. Investment properties should contribute towards increasing your personal wealth. However, this is not always the case. If done correctly, investing in property can be a very wise investment choice.

Attaining your financial goals requires you to manage your investment effectively and make smart decisions. Finding the right investment property is crucial. You must evaluate the options available to you thoroughly before investing.

Here is a simple guide to help you evaluate whether a property is a suitable investment for you:

1. Location of the Property

The location of the property is a crucial factor to consider when choosing an investment property. Try to look for houses in neighbourhoods with a good reputation. The environment and outlook of a neighbourhood make the first impression on a potential tenant. It helps drive the value of the property as well.

2. Amenities

More premium neighbourhoods attract better tenants. Another factor to consider is the accessibility to good schools, parks, shopping centers, and hospitals in the community. Families and couples who are looking to move are more likely to consider your house if it is located within a short distance of such places.

It is also important to be mindful of the available parking space in the area. Ample parking space will make your property more desirable. It is an appealing feature that can also be advertised. People don’t want to worry about their car parking every day, and this would solve their problems.

3. Attractive and Durable Features

Another factor to keep in mind while evaluating a property is if it has features that stand out. Nowadays, tenants are more attracted to modern houses with state-of-the-art features.

Whether it includes a kitchen island, a walk-in closet, a pantry for the kitchen, or beautiful fixtures in the bathroom, these are features that excite long-term renters. The property in question must also be physically appealing. The structure and designing of the house should be done to withstand the test of time. No one wants to rent out a fixer-upper.

It is also important to see whether the house has a solid foundation and structure. It should be compliant with all regulations and construction codes. You must ensure the durability of the property you want to purchase, as this can significantly cut back on your maintenance costs in the coming years.

4. Separate Entrance

Other things to consider would be whether the house has a separate entrance. This would be desirable for tenants who want their privacy. Similarly, a beautiful garden in the backyard would be loved by families. Other features to consider include garages, laundry facilities, utilities, etc.

5. Price of the Property and Rent Payments

A key aspect of evaluating an investment property is to weigh the associated costs and benefits. You should do a bit of research and calculate the maximum amount of rent that you will be able to earn by renting out the property. You should also evaluate the price that is offered to you.

Make sure that the house is not overpriced. Analyze whether the amount you will earn from the investment will be worth it. You need to take into account all the expenses associated with the rental property, like maintenance and repair costs, and calculate the cash flow you will generate over time. If the benefits do not outweigh the cost, buying the property would be a foolish decision.

For example, if you face additional expenses like repairing the roof or drainage system, it could significantly damage your cash flow. Therefore, try to engage a building inspector that can identify such potential issues with the property beforehand. Always keep in mind that the better the condition of the property, the more rent you can charge from tenants.

6. Financing the Property

Before making a final decision, it is crucial to identify your financing options. It can significantly affect your financial well-being if done right. Finding a suitable mortgage option is essential before making an investment. Interest on rental property loans is usually tax-deductible. However, they still entail some high borrowing costs, which should not be underestimated.

The loan structure you choose is critical. It is always better to consult a professional in this regard who will help you capitalize on your return from an investment. You need to choose the property, which gives you the best financing options and allows you to maximize tax benefits and lower accounting costs.

Choosing an investment property that is right for you is no easy feat. You must evaluate all your options critically and consult with professionals before you take the final step.

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