Property expert Nicholas Statman shares the most important questions when looking for a profitable investment property.
Whether you are looking to dip your toes into the property industry for the first time, or you’re simply looking to beef up your existing portfolio, there are certain things you need to look for to ensure a profitable investment. Part of being a successful property investor is being able to identify the key factors that make a property profitable. As you continue your search for a lucrative investment opportunity, ask these six questions to ensure it’s a smart investment:
How Close Is It To Everything?
While it may be tempting to find an investment property that is tucked away from the noise and chaos of everyday life, you have to remember who your audience is. Tenants are typically looking for a place that is close to everyday amenities. A successful investment property will be close enough to supermarkets , petrol stations, schools, churches, restaurants, pubs, and doctors to make a tenant’s life easier, but not so close that they are dealing with excessive traffic, noise, or safety concerns. The closer the home is to everyday conveniences, including public transportation and shopping, the higher the property value. Homes located in (or close to) the heart of the city and close to modern conveniences elevate house prices, which in turn allows you to maximise your ROI.
How Are The Local Schools?
When it comes to local property values, the school district plays a significant role. Families with children move to a specific area based on the schools that their children will attend. Many tenants are willing to pay more to live close to highly ranked schools. Tenants are usually willing to compromise on a lot of things when it comes to a rental property, but the school zone is usually not one of them. A profitable investment property will be located in an area in which families with school-aged kids will want to live.
How Is The Local Employment Market?
The job market in a particular area will also significantly impact neighbourhood property prices. The demand for rentals is higher in areas where a strong workforce has been established, and areas with an active job market attract business professionals who want to live close to where they work. Where there are jobs, there will always be a need for housing.
Does The Layout Appeal To Families?
Another critical factor in identifying a potential investment property is the layout of the home. This includes both the number of bedrooms and the square footage of the house. If you have the option between a larger home with four bedrooms or a slightly smaller home with more bedrooms, the smart choice is to go with a home with more bedrooms. If the home is located close to the city centre or the local financial district, this could be the perfect setup for 5-6 professionals looking to live together and rent out the individual bedrooms. Six monthly rent payments at £X will bring in more money than a single-family paying £X per month for a larger home with fewer bedrooms.
Even if your target buyer is not a group of busy professionals looking for roommates, a family-friendly layout is an important factor in finding a profitable investment property. Because most of your tenants will probably be families, they will be looking for a layout that is conducive to their lifestyle. This means at least three bedrooms and at least one bathroom with a bathtub.
Is The Garden Low-Maintenance?
Curb appeal is something that dramatically impacts the value of a home. The way the lawn is kept, the condition of the front door, windows, and the roof, all play a part in how much a home is worth in a specific market. When you invest in property, you are trusting your tenant to maintain the lawn and exterior of your home. While some residents may be happy to take on this responsibility, you cannot count on it. Look for properties that require low maintenance when it comes to landscaping. If the property has a large garden, you will either have to pay a landscaping company to take care of it regularly, or do it yourself. If this is not something you’re interested in doing or paying for, you may want to consider a property with a smaller garden.
Will This Property Generate A Positive Cashflow?
Just like any other investment opportunity, it is important to know the facts and figures behind every decision that you make. It all boils down to the numbers, formulas, and the math behind the investment. While it can be exciting to think about your potential for rental income, there are other expenses to keep in mind. Consider the mortgage payment, monthly repairs, property taxes, council taxes, property management fees (if applicable) and what it will cost during periods of voids. When you calculate all of these, does it seem like smart investment? Add all of the monthly expenses and multiply them by 12, then subtract that from what you expect to get annually from the rental income. Will there be positive cash flow? Many investment properties tend to need a little bit of love and upgrading to compete with the rental market. But a home that needs extensive repairs or will cost you more money per month than you are bringing in may not be an ideal candidate for an investment property.
Property investing, just like any other type of investment, is about maximizing your ROI. It is about careful analysis and strategic planning. It is about being able to identify the key factors that will make your investment a profitable one. As you continue your search for the perfect investment property, keep these six questions in mind.