Historically, the appreciation rate for real estate is very strong. Even when the housing market declines, long-term investors in real estate can rest easy knowing that property values tend to rebound rather quickly, rewarding patient investors in the process.
Looking at real estate as a long-term investment is just one way approach a potential investment property. The following are a few additional considerations prospective investors should contemplate before buying an investment property.
Many people are familiar with the real estate industry axiom, "location, location, location!" When buying an investment property, location is everything. A great location should outweigh your own personal feelings about the home, especially if you do not intend to live at the property. You will likely define a great location for an investment property differently than you would a property you intend to live in, so don't let your own desires in a home cloud your judgement when choosing an investment property. Properties in safe neighborhoods that boast good schools and offer easy access to public transportation tend to make great investment properties.
Décor is another thing to consider when looking for an investment property. If you don't plan to reside in the property, your opinion of the décor should not carry much weight. When viewing a property, try to imagine how much it might appeal to prospective tenants. Quirky properties typically do not appeal to as many prospective tenants as properties whose décor are similar to other homes in the area. Though you might find a tenant who prefers properties with unique interiors, a property that appeals to as many prospective tenants as possible often makes for a better investment and a lot less stress when the time comes to find tenants.
The condition of the property also must be considered before buying an investment property. Some investors want a fixer-upper, while others prefer turnkey properties that won't require any elbow grease. The former type of property likely won't cost as much as a fully renovated property, but those cost savings might be lost when it's time to renovate. Find a property that's in the type of condition you're comfortable with. If you decide to go with a fixer-upper, learn the cost of your potential projects before submitting an offer.
Real estate makes a great investment, but don't go overboard when buying an investment property. Before making an offer on a property, research rents in the area and the cost of insurance in that particular neighborhood. You want a property that essentially pays for itself, so make sure the rent you're likely to collect is enough to cover your monthly costs, including the mortgage on the property, insurance and the costs associated with managing and maintaining the property.
Real estate investors often reap great rewards when selling their properties. But it's still important for potential investors to consider a host of factors before investing in a property.