So, you’re at a point in your real estate investment process where you’ve got your finances figured out, and you have a solid investment strategy in mind. All you need to do now is to find the best property to invest in.
What should you be looking for when trying to find the best property to invest in? And how will the different methods of searching for a property affect your search results and help you find the best property to invest in?
Let’s get to it…
How to find the best property to invest in?: Shopping criteria
Before you start looking for the best property to invest in, you first need to set your shopping criteria. This means that before you look for the best property to invest in, you need to eliminate most options that do not fall under your area of interest. Whether you’re intending to invest in a certain location or in a certain type of property, there are a number of criteria that you will need to have decided on beforehand in order to make your search easier and more manageable. Some of the main criteria to consider include:
- The city you want to invest in
- Potential neighborhoods inside your city of choice
- The size of investment properties that fall under your interest
- The size of the land plot on which the rental property exists
- The condition of the property that you’re trying to invest in
- The number of units within the investment property
- The property’s cap rate
- The property’s cash flow
- The appreciation potential for the investment property
Of course, this list can be adjusted and personalized depending on the personal preferences of the individual real estate investor and the investment strategy that each investor is considering. However, most items on the list must be determined by any investor looking to find the best property to invest in.
How to find the best property to invest in?: The rules of investment
When it comes to finding the best property to invest in, there are a number of investment rules that have been developed over the years that have proven to determine the profitability of an investment property. These are general rules, and they do not apply to all real estate investments. But they are instead used to eliminate bad investment properties and reduce the number of properties that you’re trying to compare to determine the best property to invest in.
In other words, you should use these rules not to find the best property to invest in, but rather to eliminate the worst properties to invest in and to get a clearer list of the potential properties for your investment.
How to find the best property to invest in?: The 2% rule
The 2% rule is a rule applied to rental investment properties. The rule states that a property’s rent should approximately equal 2% of the purchase price in order for it to be profitable. For example, if you’re thinking about purchasing a property at the cost of $200,000, then that property’s rent should be around 2% of the amount, or $4,000/month. And while achieving a rent of 2% of the property’s purchase price is not possible for every investment property, the closer you can get to that percentage, the better the chances that your property’s rent will result in a positive cash flow on your investment.
This should be used to determine which rental properties in the area have a better chance to succeed and to eliminate those that clearly have a lower chance or percentage than what you’re trying to achieve, giving you a better chance of finding the best property to invest in.
How to find the best property to invest in?: The 50% rule
The 50% rule states that 50% of your property’s income will be spent on expenses, not taking into account mortgage payments. In order to use the 50% to find the best property to invest in, you will first need to know the average rental income of rental properties in the area, which can be acquired from different rental listing sources.
The 50% rule can be used to give a fairly accurate prediction of the expenses that are to be expected on your investment. Since expenses are a crucial metric to be taken into account while calculating the expected return on investment, the 50% rule can be used to replace conventional calculations of expenses for each property with a fairly accurate calculation for a large number of properties in a shorter period of time and with less effort, which makes it easier for the real estate investor to find the best property to invest in.
How to find the best property to invest in?: The 70% rule
The 70% rule states that a real estate investor should only pay 70% of what the after-repair value of the property is, minus the repair costs. For example, if a property can sell for $100,000 after you spend $15,000 on repairs, using the 70% rule, you could determine the price that you should have paid for the property on purchase by multiplying $100,000 by 70% ($70,000), and then subtract the repair costs of $15,000, giving you the number $55,000. This means that, for our example, the amount of money that you should pay for the property in order to make a profit of the sale should be $55,000.
It is important to note that the 70% rule is mostly applied to house flipping, while the 2% and 50% rules are mostly used for rental properties.
Related: How to Value an Investment Property
How to find the best property to invest in?: Where to look
When it comes to sources, websites, or platforms that can be used to find the best property, a quick search could give you a sufficient list of sources to choose from.
We are, however, going to talk about one platform in particular that can be used to find the best property to invest in, which includes powerful real estate investing tools that can be used to further narrow down your search, in addition to providing you with the data needed to analyze the properties based on the criteria mentioned above. Mashvisor is a platform that can be used to find investment properties around the US based on specific search criteria such as the city or the neighborhood levels, the cash flow, the Airbnb occupancy rate, and the rental rates, as well as a number of other metrics that can be used by any real estate investor.
Additionally, Mashvisor provides you with a heat map tool to enable you to search for the best property to invest in based on visual cues as well as numbers, and an investment property calculator tool which allows you to calculate the expected rental income on the property or any other calculation that needs to be made in order to find the best property to invest in.
How to find the best property to invest in?: Conclusion
Finding the best property to invest in is only one step of your real estate investment journey, but it is a crucial step nonetheless. Use Mashvisor to find the best property to invest in anywhere in the US; this will give you a major advantage over other real estate investors by helping you avoid bad investment decisions and further specify your search to find the perfect property to invest in at a reduced amount of time and effort.