How To Find Investment Properties
Rental properties are a lucrative investment that can help you build wealth long term. But, it's tough to know where to start to find investment properties if you're new to the real estate investment game.
Investing in rental property offers a stable source of passive income, especially since rent prices continue to climb. Plus, most real estate investments appreciate over time and come with some tax breaks. But, owning a rental comes with expenses, too.
Once you've considered all the benefits and challenges of being a rental real estate investor, the first step is to start your house hunt. Here's are some tips for how to find investment properties.
What is an investment property?
Investment properties are homes that you purchase for the sole purpose of generating income. Homeowners typically don't live in their investment properties. Instead, they rent or fix them up and flip them for a profit.
Rental property investors typically hold onto the home for several years while drawing monthly rental income. In many cases, the rental payments cover most or all of the expenses of owning and running the home.
Down the road, after the home has increased in value, you may choose to sell it for a higher price than you paid. This can turn into a hefty profit.
What to look for in an investment property
Making money on an investment property starts with buying smart. On your quest to find an investment property, there are several things to look for to ensure you're purchasing the right home that will bring returns for years to come.
The location is the No. 1 factor to consider. Maybe the home is beautiful and in tip-top shape but if it's located in a less-desirable neighborhood, you'll struggle to rent it out. Vacancies are costly. A great location also determines how much rent you can charge and the quality of tenants you can attract.
Look for safe areas, with excellent schools and other amenities like parks, shops and restaurants. It should also offer easy access for commuters to get where they need to go.
Local rental market
Does the neighborhood attract renters and new homebuyers? Are home prices going up? How long do rental homes sit vacant before a new tenant moves in?
These are all questions you should get answers to on your search to find investment properties that will offer profitable returns and appreciate in value. Find out how much similar homes in the area rent for and tally up what your expenses might be. Taking these steps will help ensure you see a return on the investment.
Property taxes and insurance
Property taxes are a major expense of owning a home. Tax rates vary across the country, but typically range from 0.5 to 2.5 percent of the home's value, according to Rocket Mortgage. Check with your local assessor's office to see how much a home's taxes might be. It could cost anywhere from a few hundred dollars to a few thousand dollars a year.
Rental properties need landlord-tenant insurance to cover the home itself and liability in case someone gets injured at the home. These policies often cost about 25 percent more than a regular homeowners' insurance policy. Check with your insurance company for a quote on insuring the home.
Repairs and maintenance
The home's condition is another crucial aspect to consider. Pay attention to whether the property needs significant repairs and sprucing up before it's ready for renters. These are costly and affect your bottom line.
Pay attention to large items that are costly to fix. For example, how old is the home's roof? The HVAC, plumbing and electrical systems? If these aspects of the home aren't in great shape, you'll pay to repair or replace them down the road.
Also, consider how much maintenance the home will need each year, such as yard work, pest control and general upkeep. Calculate how much this might cost every year.
How to find investment properties
Now that you know what to look for, where can you find investment properties? Here are some places to start your property search.
Talk to a local real estate agent
Real estate agents know all about their local markets. So, they're a valuable resource to find investment properties that meet your needs, especially if you're new to real estate investment.
An agent knows which neighborhoods are most desirable, the areas where homes are most likely to appreciate and what the rental market looks like. They also have information on properties before they hit the market, which could help you nab a great deal.
The best way to find a real estate agent is to ask for referrals from family and friends. Check their reviews on search engines and ask them a series of questions to see if they're a good fit. Let the agent know what you're looking for in an investment property.
Browse real estate websites
Most homebuyers start their property search online. Using a real estate website lets you determine what kinds of homes are available in different neighborhoods and how much they cost. The websites also help you narrow down your investment property search if you're unsure of exactly what you want.
Redfin is a great place to find investment properties. You can search by neighborhood or ZIP code and filter properties by price, type of home, the number of bedrooms and bathrooms and other criteria. You can also contact the home's real estate agent for more details.
Visit an auction
Another way to find investment properties is to attend local auctions. When homes go into foreclosure or need to undergo a tax sale, they're often put up on a public auction.
Contact local real estate auction houses to keep up with future events. This is a great way to find off-market homes. These properties also are typically cheaper than market value, so you can find some good deals. One downside is that the homes often need significant repairs.
Work with local wholesalers
Real estate wholesalers work directly with home sellers to find buyers to purchase their properties. You can usually find wholesalers online or through a real estate agent. They might be able to help you find a home quickly and below market value.
Finding investment properties
There are several places to find investment properties. Knowing where to look and what to look for will set you up for success.
Being a successful rental property investor depends on finding the right home — in the right location and offers the potential to go up in value. You'll also want to calculate how much your expenses might be, including taxes, insurance, repairs and maintenance.