Investing in real estate is one of the best ways to build wealth. Real estate is a popular investment choice due to its stability and potential for future value growth. In fact, investing in real estate is one of the major contributors to the prosperity of many households.
However, as with any investment, it’s essential to educate yourself before you take the plunge. Here are seven things Brevard County landlords should consider when investing in real estate.
Location of the Investment
Location is the most critical determinant of your real estate investment’s success. Characteristics such as proximity to facilities, school zone, local transportation routes, and the area’s desirability are crucial.
One way to stay ahead of the curve is to look out for any future development in your chosen location over your investment term. Due diligence can help reveal plans that may impact your investment’s future value. Before purchasing an investment property, it’s crucial to thoroughly investigate the intended use and ownership of nearby properties, businesses, and vacant land. It’s also essential that you ensure any location you invest in aligns with the needs and wants of your target tenant demographic.
The value of your investment property impacts all real estate-related decisions, including; insurance premiums, property taxes, and investment analysis. Common methods of valuation of the property include:
- Income approach: Determines the expected financial inflow your rental can product
- Sales Comparison Approach: Consider comparable sales of similar homes in the area to ensure you’re not paying over market value
- Cost Approach: Calculate the total cost of the property and renovations and subtract the depreciation.
Define Your Investment Purpose
As real estate investments require large amounts of money and involve relatively little liquidity, it’s imperative to be knowledgeable about the market. Without a clear plan for your investment, you could end up in financial trouble.
Defining your investment purpose is the first step to determining the necessary preparations. Popular investment methods for Brevard County landlords include:
- Buy & Lease: Creates a steady revenue stream and provides long-term asset growth.
- Buy & Sell (Long-term): Creates optimal fundamental value growth over a more extended period of time. It can also provide a solution for longer-term objectives such as pension planning or financing college tuition.
Calculate Cash Flows and Profit Potential
Creating a healthy cash flow and profit requires practical investment goals and intelligent utilization. Creating a preliminary forecast of your anticipated revenue and costs can help you avoid financial disasters. Important factors to consider include the following:
- Expected rental revenue cash flow
- Potential increase in the investment property’s intrinsic value
- Potential tax benefits such as gains from depreciation
Be Wary of Leverage and Know its Pitfalls
Maximize the benefits of your mortgage loan by understanding how to manage it. It’s essential to base your decisions on your present and your anticipated future earnings. Be sure to consider the following:
- Choose the loan option that best suits your needs. You should understand the terms and conditions and also take into consideration any additional fees that your lender might charge.
- Shop around for your loan and research your options to ensure you find the best product.
Consider New Construction
New construction homes have the potential for customization and often provide sought-after amenities that renters are looking for. In comparison, resale properties tend to come at a lower cost; however, they also tend to require more improvements to bring them up to modern renter’s standards. When determining the best property type for your investment, consider the following:
- Whether you opt for a new build or a resale property, you must conduct a thorough property inspection.
- For new builds, consider the construction company’s reputation. If you know any current owners, ask them about their experience.
- For resale properties, be sure to conduct a full title search to ensure there are no outstanding liens against the property.
- Be sure the property has all of the required appliances you plan to use in your rental. If it doesn’t, estimate how much it will cost to provide them to prospective tenants.
Hire a Property Management Company
Managing a rental property can be time-consuming and overwhelming. It’s a smart move to hire an experienced property management company to oversee the daily rental operations on your behalf. Not only can this save you time and stress, but it can also save you money too! A licensed property manager will help you determine the optimal rental price for your investment while also ensuring you adhere to local and state rental laws and regulations.
Our Brevard County property managers are dedicated to providing expert, customized property services that can help you sustainably grow your rental portfolio. Click here to learn more about our services!