Real estate investing is a business, and like in any other business you first need to conduct lots of research before you can make the right investment decisions and start making money. Thus, before you are ready to invest your money as a real estate investor, you should first start researching investment properties to make sure they are a good choice. You should take all time and effort needed to conduct thorough research of the local housing market where you plan to invest in real estate, first, and of specific potential investment properties, then. Don’t be scared, we won’t leave you alone in the process of researching investment properties. To help you out as a real estate investor, here is a comprehensive list of all the steps you need to take in order to end up with the best real estate investments.
Researching Investment Properties Step #1: Choose the Right Neighborhood
Location is key in real estate investing, no doubt you already are well aware of this fact. When it comes to real estate investments, location is a number of things including the country, the state, the city, the neighborhood, and the street. Location will determine what type of property to buy, what rental strategy to go for, how much rent you can charge, who your tenants will be, and what your occupancy rate will end up being. That is, location will determine your return on investment for rental properties.
Thus, you should choose your neighborhood carefully and study it well before you buy an investment property. Drive through the neighborhood during different parts of the day to see whether it is lively and safe enough to make for a good real estate investment location. Talk to locals – both individuals and businesses – to see how it is to live and work in this neighborhood. Remember, the best real estate investment properties are located in the best neighborhoods.
Researching Investment Properties Step #2: Study the Future of the Neighborhood
Once you are aware of the current situation in the real estate market you are considering, it is time to look into the expected future of the location to complement your researching investment properties. Visit the city government website as well as actually talk to city government representatives in person to see what the future development plans are. Infrastructure is one of the most important factors in a location for real estate investing, in addition to the local economy and the job market. Rich future development plans might turn a so-so location into an excellent place for investing in the best real estate properties. At the same time, if future development plans are inadequate to keep up with the population and economic growth in a booming location, this would be a bad place for investing in real estate in a few years. Make sure you know if people will be moving in following job growth and new infrastructure developments or will be moving out. This will determine the demand for your rental property and how much rent you can charge for your house. Pay particular attention to such factors as access to public transportation, availability of schools, hospitals, shopping centers, stores, etc. All these would attract more people to move into the location of your investment property, which means more tenants for you in the future and higher rental income.
Researching Investment Properties Step #3: Conduct Real Estate Market Analysis
The next step in researching investment properties reaches to the core of real estate investing: conducting real estate market analysis, also known as comparative market analysis (CMA), to obtain real estate comps. Real estate comps for you, beginner real estate investors, are properties similar to yours which have been recently sold or are currently listed on the market. You need to know the prices of similar real estate properties which have just been sold (in the last 6 months) or are currently being sold to know how much you should be able to spend on your own investment property in this location. This step of researching investment properties might just as well show you that this particular neighborhood is way above your budget.
Instead of conducting real estate market analysis on your own, you could work with a real estate agent and ask him/her to get you some real estate comps. Hiring a real estate agent will be of great help to make sure you pay the right price for your rental property.
Alternatively, you could use Mashvisor, which provides real estate investors with all needed figures including median property price and traditional and Airbnb rental income as well as traditional and Airbnb cash on cash return and traditional and Airbnb cap rate at the neighborhood level for hundreds of cities and towns across the US housing market. The platform also gives you access to valuable tools like a property finder and an Airbnb calculator to make the hunt for investment properties a lot easier.
Researching Investment Properties Step #4: Study Local Rents
The previous point brings us to the next step in researching investment properties: understanding how much rent local landlords charge for the type of property you are considering buying. You could simply ask around, both local landlords and tenants, how much they charge or how much they pay for a rental property per month. On the other hand, you could ask your real estate agent to get this kind of information for you. The major benefit of using a real estate agent is that he/she should be able to give you a relatively accurate forecast on whether rent rates will be going up or down in the coming months or years, depending on the expected future local developments. Better yet, you could use Mashvisor to see the average level of rental income for investment properties in this area, both in case of traditional and Airbnb rental strategy.
Related: How Much Can I Rent My House For?
Researching Investment Properties Step #5: Visit Properties for Sale
Next in researching investment properties, you should actually go visit some real estate properties for sale in the area you are considering. You can call the numbers of the “For Sale” signs you see around the neighborhood and schedule a visit for yourself. You could ask your real estate agent to schedule visits for you to several properties for sale which match your investment and budget criteria. You could also look for real estate open houses in the neighborhood and stop by. It is a good idea to visit as many real estate properties for sale as possible and as humanly reasonable in order to get a precise understanding of the actual price of properties in the area where you plan to invest in real estate.
Researching investment properties takes time and effort, but this is the only way to buy profitable real estate investment properties and make money in real estate investing. If anyone else tells you anything else, this person is lying to you. Luck is rarely a factor in real estate investments. It is rather all about obtaining the right information by researching investment properties and making the right investment decisions.
To learn more about the exciting world of real estate investing, sign up for Mashvisor.