Most people searching for investment property don’t understand the deeper and often most important “value variables.” Most long term “value variables” are overlooked. However, if everyone investing in real estate has the same ultimate goal – to make money – investors should learn what to look for to maximize appreciation in addition to affordability and cash flow.
One of the biggest mistake first time investors make is imagining they have to love their investment purchase as thought they were going to live there. Most of the time investment buyers aren’t going to live in the investment property. Sure it’s important to have a desirable rental but different people appreciate different things. Don’t get hung up buying the perfect home for you, focus on buying an affordable property that generates the best income and is most likely to appreciate.
When buying investment property focus on value, potential income and appreciation. If you plan to rent the property you’re purchasing, find the best configuration to earn the most income on investment. Generally the most income is made on multi-unit properties like 4 plex’s, 8 plex’s and apartment buildings. It can take awhile to get to the level of investment and is a nice goal. Most often a person needs to start smaller and this means finding other value in property. You have to start somewhere and if you haven’t been a landlord yet a single family home might be the best place to begin. Find a desirable well priced home that will attract good tenants willing to pay a rent that covers all your bills and leaves some cash ahead for maintenance etc. In addition you’ll have a mortgage being paid down by someone else, on a property, when paid off, you fully own.
One value variable that’s tougher to gauge or foresee is appreciation. Some subdivisions and locations will appreciate quicker than others base on different reasons. Some of these reasons are hidden and often need an expert to see.
The first property you buy may not be in the area you like the most and it may be lacking some features you like. Remember, less desirable areas will have the most affordable prices. Knowing what to look for you can find affordable property in an area that’s improving.
Looking outside the areas you like most is where you will find the best deals. Remember, most people get caught up buying what they like. Because most people do this you’ll find opportune areas in cities where most people avoid. Could there be value there? Sometime yes.
Maybe an area became run down because it had an industrial section and railroad running through it. Nobody want to live near industrial and railroad. What if that very same area was bordered on one side by a park? What if a river run along a section? The industrial area and railroad with make an area less desirable with the park and river having the opposite effect. Now, what if, the industrial section is cleared and rezoned? What if the railroad track is removed? What if you could buy affordable property in an area where these things have happened and are happening? Is there a chance that properties are priced low now but will appreciate based on the parks and river location?
What do you think will happen to a residential area close to a river? What generally happens to a residential area close to the downtown commercial? Prices go up because people want to live closer to work and water. Who wouldn’t like to live close to rivers and parkland. These areas go up in price quick.
Smart buyers see value where others don’t and they understand it takes time for an area to transition. Knowing what to look for a smart buyer picks up the property cheap before everyone else catches on.
Here’s a secret. There is an area in Red Deer, Alberta where a rejuvenation transition is happening right now. It’s the early stages and it can take a long time but homes won’t be “cheap” there in the future. Riverside Meadows is a subdivision in Red Deer that was once bordered by industrial and railroad tracks. The tracks are gone and river land boarders one section, parks on another and it’s adjacent to the Bower Ponds (which are connected to the Red Deer Golf and Country Club). Many people don’t like Riverside Meadows right now and that’s what makes the property so affordable. However, with it’s current “value features” it will probably see more progressive appreciation each decade compared to a typical subdivision. What happens then? Property values “snowball.”