Investment properties are great for bringing in extra income. By working with an estate agent to find the right community and type of real estate and by being realistic about managing an investment property, you can make a smart purchase that will bring years of profit and satisfaction.
The Top 5 Things that Go Into Making a Smarter Purchase
An investment property is exactly what it sounds like –it’s a piece of real estate purchased with the intent of generating additional income. Investments can be short or long term. Investment real estate can include developed and undeveloped land as well. This article speaks specifically to buying developed real estate to use as a long-term investment property.
While there are several factors that to be taken into account when buying investment real estate, there at least five things that any long-term investor should do to ensure the investment is profitable and satisfying.
- Invest in a Property You Will Also Enjoy
Though not a requirement for a successful investment, selecting an investment property that is in a location you will enjoy visiting is going to add to your overall satisfaction because you and your family can enjoy it during those times when it is not being rented.
- Pick a property in a vacation destination that you like to visit
- Pick a property that will accommodate family and friends likely to accompany you on vacation
- Select Real Estate that is Already Developed
Though the urge to build a beach house dream on a plot of undeveloped land in a gated community might be tempting, the effort and minutia could be extremely difficult to deal with especially if you live far away from where the investment property is going to be located.
Unless you are a big developer, live in the area, or intend to use the investment property a significant portion of the year (and thus want everything to be a certain way), then selecting something already established is the way to go.
Remember, even though your satisfaction and enjoyment of the property is a factor, it isn’t the only factor. More important is:
- How manageable will the property be, and
- How marketable will the property be?
- Work with an Estate Agent to Pick a Property
Existing properties that have been used as investments previously will often include information about the amount of income they can produce on an annual basis. This is useful information; however, a real estate agent who is knowledgeable about the area can advise on:
- The popularity of the area – What kind of vacationers does the area attract? Are you looking to rent to snowbirds, spring breakers, families, honeymooners, or all of the above? This will make a big difference if you’re looking at Florida panhandle real estate and trying to decide between investing in Rosemary Beach versus Destin versus Panama City.
- The condition of the local real estate market – Though you might be planning to hold on to the property for years to come, there’s a chance that you’ll opt to sell sooner than you originally thought. Thus, it’s important to invest in an area with a strong market –or that is developing into a strong market—and that is looking up rather than looking down; avoid investing in an area that is past its prime and is showing little sign of revival.
- The pros and cons of the area – Where are the grocery stores? Is there a lot of shopping? Is the area conducive for fishing, hiking, and biking? What makes the area attractive? Because you’re probably going to be investing in an area that you have never lived in, you have no way of knowing about the community’s charm without consulting someone with insider knowledge.
- Research the Property’s Seasonal Potential
If you’re buying on sunny 30A’s emerald coastline, you can guarantee spring and summer will be peak times of year, but what about during the winter and the “off season”? While there are some beach communities that lose their appeal when it’s too cold to enjoy the main attraction (the beach), there are several –especially on 30A—that offer all kinds of viable fun to vacationers.
Thus, work with your estate agent to find a location that can work for you during the offseason as well. Look for communities that offer more than just sand and surf. Some things that attract vacationers year round are:
- Golf – Golf in the Destin area especially is very popular.
- Shopping – Vacationers often are looking to get away; shopping in local boutiques and outlets are always fun activities.
- Nightlife – Couples and groups (bachelor or bachelorette parties or girls weekenders) in particular actively seek vacation destinations with nearby nightlife opportunities.
- Outdoor Sporting – Hiking, biking, and fishing are popular year-round activities in nearly every 30A community. With rare coastal sand dunes and easy state park access, communities like Santa Rosa Beach, Blue Mountain Beach, Rosemary Beach, Seaside, and WaterColor are very popular.
- Dining – The majority of the Florida panhandle is peppered with delicious, exciting restaurants where fresh, local cuisine is expertly prepared. Some communities have more dynamic dining scenes and varied options than others, so this is something else that could impact your rental’s year-round potential.
Because condominiums generally tend to be in areas that have at least two or three of the following attractions in addition to indoor heated pools or hot tubs, they are typically a highly appealing option for those who buy an investment property.
- Be Realistic about the Financial Aspects of Additional Real Estate
Typically, investment properties are not purchased outright; usually, buyers get a mortgage loan to finance the purchase. Income from rentals simply expedites paying the loan back to the lender, so that all of the income can be profit; however, there are several things to calculate and consider when exploring the monetary aspects of an investment property.
- Don’t Forget Insurance and Taxes – A mortgage calculator will show the monthly amount for the mortgage; it typically doesn’t factor in insurance, HOA dues, and taxes, which can add as much as a quarter to a third onto the monthly note
- Factor in Other Expenses – Unless you live in the area and plan to visit the property frequently, then you’ll need to consider how much landscaping and lawn care (if not covered by HOA or other property dues), property maintenance, utilities (water, electric, cable, etc.), and cleaning services will cost monthly or following rentals as well.
- Don’t Invest More Than You Can Afford – Ideally, you will rent out your investment property as frequently as you like and will have plenty of additional income to cover the second property’s expenses; however, it is best to be conservative when calculating finances. Pick a property that you could afford regardless of whether or not the rental market slows down.
By investing in something that is realistic within your budget, you are further ensuring that owning an investment property will be a pleasurable experience. So, contact a realtor in an area you enjoy visiting and find a desirable piece of investment real estate that works for you and your budget.
Finding the perfect real estate to call an investment property can be easier said than done. Get in touch with an estate agent who knows the sugar white sands and emerald shores of 30A like the back of her hand. Coastal living expert, Melissa Clements, will help you every step of the way from finding the ideal community to sealing the deal on the perfect investment property.