How to Find the Right Investment Property

1/23/2015

Experienced investors know the four priorities for planning an investment strategy:

1. Find the best investment location

2. Understand your financial potential

3. Find the right financing

4. Select a strong property management solution

Find the investment market that’s right for you

There’s two schools of thought about finding your best rental market – never invest where you live, or stay close (but not too close) to your properties. Obviously, living too far away limits your access to your properties, making you rely on your property manager. Nevertheless, investing in other cities’ markets may increase your yield potential. Some markets – such as Memphis, TN and Saginaw, MI – offer much greater rental property investment potential than other locations.

Bottom line: investing in markets near you keeps your investments close at hand but may limit your profitability.

What’s your investment potential?

Investing in rental properties usually follows two paths: the straightforward cash purchase or the leveraged, financed purchase. The cash purchase yields immediate cash flow results. With a fully amortizing loan, each month an increasing percentage of your mortgage payment goes to principal, thus reducing your overall debt.

Sophisticated investors factor in these principal reductions as part of the total return calculations for the property. Over time, the total return on the financed purchase will surpass the cash-on-cash return of the non-leveraged property as principal is paid at increasing rates and interest expenses diminish.

Financed purchases make a great way to buy multiple properties for the investor who’s willing to see cash yields deferred; for example, the investor planning his retirement several years hence.

What financing is right for you?

There are plenty of investment financing options, and several different methods. Which kind is right for you? That depends on your own needs. But you should shop around, considering which financing is available to match your potential as well as your needs. Factors include whether you’re a domestic or international investor, your existing credit rating, and your available capital.

Finding the right property manager

Good property managers provide timely, accurate reporting of their various services. Very good property managers work to save you money by performing routine maintenance, wisely purchasing supplies, and responding promptly to tenant requests.

The best property managers will do all of the above while at the same time giving you timely statements detailing your property’s revenues and expenses. A strong property manager will be a constant key to maximizing the returns of your investment property portfolio.

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