The promise of great financial rewards frequently brings out proponents of get rich quick schemes, but to achieve wealth through investment properties, plan to stay for a while.
Equity is Built In
When an investor buys a property at the right price, there is no need to wait for the value to increase. A well bought home or building will be purchased at a price below market, instantly creating equity, but before you get ready to flip for a quick buck, consider the following:
-Holding on to the investment allows you to take tax deductions and depreciate the value.
-As the appraisal price increases over time, so will the available equity.
-Over time, a greater percentage of the mortgage payment goes to the principal owed, increasing your monthly cash flow every year.
Contrast this with a quick flip for a few thousand dollars, and buying investment property to hold makes much more sense. The money earned from flipping needs to be re-invested quickly to avoid taxation as well, and a rushed investment is usually a bad move.
Selection Criteria
So how does one find properties with potential for growth at a bargain price? Research. It may be surprising to learn that the most important part of property investing is researching the market you wish to invest in. To find this area, do some in-depth study. Follow trends via real estate newsletters, economic forecasts, top news stories, and other sources, and possibilities will become apparent.
In general, you are looking for areas with low supply and a high, or at least rising, demand for both commercial and residential rentals. While these figures can be estimated by speaking with local professionals, they should also be evaluated relative to core market drivers.
The first of these is employment; without jobs, people will go elsewhere for work, lowering demand. When jobs are plentiful, the areas surrounding the major employers have a higher demand. The other drivers are population and location.
Obviously, an increase in population rides on the heels of high employment, but this does not automatically mean the supply is low. The region may have surplus inventory in anticipation of population growth. While employment is a factor in driving population, so are unique areas such as Balboa Island in California or properties in Hawaii. People will often find ways to create a life in these locations in order to enjoy the one-of-a-kind experience it offers.
Thus, the third driver is location. Searching for high visibility investment properties with unique features, located in high demand areas is the key here.
When buying investment property, remember to buy low in a great area where people want to live, and then hold on for the ride.
Do It Yourself