When it comes to investing in real estate investment properties, it is crucial to take into account the macro and micro conditions before investors hone in on an income property to make money long term.
Without looking on the outside in, you cannot maximize your returns and diversify your portfolio for the biggest gains. It goes without saying that real estate investing is an ideal investment plan for many people because it a safe path to grow your returns and secure for your retirement down the line. Keeping this in mind, luck is not what will get you to make big wins in real estate. Only due diligence and proper real estate market analysis will reap investors positive outcomes.
Related: Rental Property Investment Options for Investing in Real Estate
To define what the best and worst real estate investment properties entail, we must look at the big picture first. This includes asking the following questions:
Is this a good time to buy/sell real estate?
What are the economic indicators in this city? Will there be economic and employment growth down the line?
Is the neighborhood safe and attractive in terms of the amenities and nearby facilities?
These are just a small sample of questions to ask yourself when honing in on the right location for your rental property. To make things easier for you, Mashvisor’s rental property calculator and heatmap tool allow investors to pinpoint cities with the biggest financial rewards and positive cash flow returns for real estate investing.
Once you find the right city/neighborhood/location for your real estate investment properties, it is time to inspect and assess the rental property itself. Ask the following questions:
Can I really afford to buy this property?
How much work is there to be done?
Will this be worth it for me in the long run?
What are the projected income returns and overall ROI?
So to put it in other words, there are no best and worst real estate investment properties per se; the profitability of an income property takes into account many factors such as location, the economy, the tenants, the property’s condition etc.
Investment properties (whether traditional or Airbnb) in the best condition located in an unsafe neighborhood will not reap landlords big profits and feasible returns. Same goes for a run down rental property in a good neighborhood. Both cases will experience high vacancy rates and low rates of return.
Related: How Can You Assure the Best Return on Rental Properties?
The 6 Worst Mistakes for Finding Investment Properties
- Not having a business plan
If you want to become a successful real estate investor and make money long term, make sure you have a roadmap about what exactly you want and how much money you want to make from this real estate business. Set short term and long term goals, have an overall vision for your business and make decisions aligned with this greater goal. This way you are clear about what you want and how you should achieve it. Do not invest on a whim; luck can only get you so far.
- Discounting the fact that real estate investing is highly illiquid
If you are bootstrapped for cash and hoping real estate investing will make you quick money, think again. Real estate investments are highly illiquid and it will take many years to make money and earn a big profit margin in the traditional sense.
- Thinking flipping houses is easy
This brings us to the next point; if you also think flipping houses is a great short term strategy to make quick cash, think again. Flipping houses is not easy, especially for beginner investors with little experience.
- Underestimating costs
To find investment properties for the biggest rewards, it is crucial to keep your costs to a minimum to maximize your returns. Whether you opt for a traditional or Airbnb rental property, make sure to assess potential costs and calculate your overall net profits after taking into consideration your fixed and variable costs. Also, make sure to mitigate your vacancy risk to keep your costs to a minimum. A high vacancy will burn a hole in your pocket. Lease your investment properties to the right tenants.
- Overestimating rent
If you set a pricing strategy that is not correlated with the rental property and location, you will incur high vacancy risk and lose money out of your own pocket. If your rental property is vacant, be rest assured your mortgage payments are not paying themselves. If you set the price too high, you will not find tenants. The same goes for pricing too low: you will be missing out on the rental property profit potential. The best advice to give you is to perform comparative market analysis. You can check out real estate comps on websites like Mashvisor.com to avoid this mistake.
- Paying too much for the rental property
Putting all the pieces together, if landlords/real estate investors end up spending too much money on a rental property and not earning maximum returns, they won’t build long term wealth in real estate investing. To avoid this mistake, Mashvisor’s rental property calculator measures net profitability on traditional rentals and Airbnb income properties across the country. This guarantees the ROI and gives accurate estimates on how profitable your rental property will be given your total expenses and fixed costs.
Related: 6 Questions to Ask Yourself Before Buying Multi Family Homes for Investment
Regardless which real estate strategy you choose to kickstart your real estate business, make sure you carefully study your prospective investment properties and calculate the cap rate, cash on cash return, the NOI and the overall ROI before you buy and hit the road running.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.