Investing in real estate can be a lucrative proposition if you practice due diligence and do your homework. If you don't, your real estate investment can mean continual headaches and potentially cost you a lot of money.
- What's the employment outlook? It stands to reason that people want to move to locations where job opportunities are plentiful. The more jobs there are, the more renters you're likely to attract. Your first step is to visit the website of the Department of Labor, where you'll find relevant state and local employment statistics to help you make an informed decision. You should also follow local news, looking for stories about new businesses moving into the area.
- What's the surrounding area like? It makes a difference to potential buyers or renters whether a property is close to public schools, hospitals, colleges and universities, restaurants and shopping malls. Take the time to check out the area surrounding the property in which you're interested. One rule of thumb: if you'd move to that area, so would potential renters.
- Will rent cover your mortgage? First, see what other renters in the area are charging. Compare what they offer to what you do to get a good estimate of what you'll be able to charge. You'll also want to see whether other renters are finding renters for all their units. Based on this information, calculate how much your likely to collect in monthly rent, and make sure it's more than enough to cover all your bills, including those for your mortgage, taxes, insurance and property maintenance.
- Is the area safe? It's just common sense: people don't want to move to neighborhoods where their safety is in danger. Check with the local police department to get the most recent crime statistics. You should also talk with current residents of the neighborhood to find out what their experience with crime has been.
- How about amenities? Will renters be able to go to a movie without driving 20 miles? Are there parks where their children can play? How about ordering a pizza an 2 a.m.? These amenities make a difference—if the area offers many such positive features, you can also use them to advertise your rental units.
- What's the quality of the school system? Some public schools are much better than others. How diverse are course offerings, and does the local high school offer AP courses? What percentage of students graduate (on time), and what percentage go on to 4-year colleges? The quality of local schools will influence potential renters, so you should use resources like Neighborhood Scout to assess school quality before you invest.
- How bright does the future look? Everything in the area might look fine now, but how will it be in 5 or 10 years? You need to know, for example, if there's a plan to construct a sewage treatment center 3 blocks from your property, or, alternately, if major developments are coming to the area that will increase the value of your property.
- What do market trends look like? How much inventory is currently on the market, inventory with which you'll be competing? Do current renters have a slew of vacancies or are they able to fill all (or most) of their rental units. These facts will help you determine how many of your units you'll likely be able to rent, and how much return you'll get on your investment.
- How about those property taxes? Property taxes vary dramatically from one area to another, and they can take a big bite out of your income. Make sure you carefully review how much you'll need to pay in taxes now, and if there are any plans to raise (or lower) those taxes down the road.
- And, how about insurance? Insurance is another big factor that can reduce your income. First, find out if you can get insurance (for example, you need to know if your area is a flood zone). Then find out how much your insurance will be. Work closely with an experienced insurance agent to make sure you get your figures right.
Investing in real estate can provide you with substantial additional income, or it can break the bank. It all depends on the actions you take before you make your investment. To safeguard your investment, do your homework and make sure all your questions are answered before you make your final decision.
If you're in the market to sell a property, or to buy a new one, we can help. We're Southern Arizona's #1 Real Estate Investor, call and find out how we can help you invest in your future, (520) 867-4700. To learn more about our comprehensive services to maximize your home's value, contact us today.