Key Property Features: Real Estate Investing
Editor's Note: This post was originally published in September 2020 and has been completely revamped and updated for accuracy and comprehensiveness.
Investing in real estate can be a great way to build wealth, but it's important to make sure you're making a smart investment. With so many factors to consider, it can be overwhelming to know where to start. This blog will explore the top factors to consider when looking for a real estate investment property.
Top Factors to Consider in a Property
When it comes to investing in real estate, there are many factors to consider that can be dependent on your investment strategy. Here are some of the most important:
Comparable properties
When looking at a listing, make sure to check properties within the neighborhood that have similar characteristics. Basically, you can use this to indicate how much your fix and flip or rental property will bring in after renovations. In other words, comparables (or comps) will tell you whether you’ll have a good chance of profiting off the flip.
When looking at what people have paid for homes in the area, pay careful attention to the offers people have made on both the before and after renovation conditions. That way, it’ll help you calculate costs such as the potential after-repair value (ARV), a reasonable budget for renovations, and an offer you can make to the seller.
As you’re doing your research, you’ll want to ensure they’re within the same school district and municipality and have the same amenities as the property in question. Plus, look at properties that have sold, especially within the last six months.
Time on market
The longer a house sits on the market before it’s sold, the more likely it is that there is less demand for the property in that area. Looking at the days on the market can also show you your potential return on investment (ROI) since the longer a property is on the market, the higher the carrying costs. As well, you may not sell a renovated property for your asking price (or close to it), which affects your profits.
Look at sales data for the average days on the market (DOM) and the typical number of offers for multiple properties in the neighborhood to see how hot or cold the market is. It can help predict how well a home will sell.
Average age of homeowners
Though it’s not a clear-cut prediction, looking for neighborhoods with older homeowners means that gems could be found. That’s because retirees or older homeowners tend to have homes that need to be updated or struggle to keep up with other types of repairs done, potentially increasing your chances of finding a property you can flip and turn for a profit. Plus, this type of demographic may be looking to downsize or move into assisted living arrangements, which sometimes means they’ll want to sell quickly.
Age of neighborhood
The older the neighborhood—a minimum of 20 years—the property may need more renovation work. Basically, you may be able to find a property that can be bought at a good price and increase your ROI once you make improvements.
Population growth
Population growth helps you understand trends in the area you’re looking for and the target market. The point is to be able to forecast so you can sell your flipped properties to a new buyer. This means that seeing whether there is a demand for your home in the market is paramount to your success.
Looking at population trends helps you see whether there will be potential home buyers in the near future and invest in general for the time being. The more people entering your market, the more likely you’ll find more demand from potential buyers. Places like the U.S. Census Bureau offer intel on population trends throughout the country.
Property features
Seeing different features, such as the number of bedrooms, bathrooms, and even the outdoor areas, can help you determine the type of buyer that will be attracted to the property. If the house you’re looking to purchase doesn’t have features buyers in the area they’re looking for, then renovating it so that it does could eat into your profits.
For example, if you’re looking at a home with an open plan layout and only requires a few repairs and upgrades like new kitchen cabinets, it might take less time to flip than an older home with closed-off bedrooms and smaller bathrooms.
When it comes to buying a home, certain features tend to be more popular with buyers than others. Here are some of the most sought-after features and what you should know about them:
- Size of Rooms: Many home buyers place a premium on large master bedrooms, as they can be a sanctuary away from the rest of the home. As for other bedrooms, they generally prefer enough space to fit a queen-sized bed comfortably and have room to walk around.
- Bathrooms: The more full bathrooms a home has, the better. Most buyers prefer homes with at least two full bathrooms, and for homes with two or more stories, a half-bath is desirable on the main floor.
- Garage: A two-car garage is a popular feature, especially in more suburban areas. For luxury properties, having a larger garage or even a garage that can accommodate more than two cars could add to the home's value.
- Layout: Open-concept layouts, particularly in the kitchen and living room, are all the rage these days. Many buyers are willing to pay more for a home that feels open, airy, and bright. However, be aware that tearing down walls to create an open layout can be expensive and may eat into your profits.
Consider speaking with a real estate agent or professional home stager to see if there are less costly ways to create a more open feel in your home. By keeping these popular features in mind, you'll be better equipped to make decisions that can help increase the value of your home and attract more interested buyers.
Property taxes
This factor tends to be overlooked by real estate investors. The thing is, you do need to consider property taxes since they’ll add to your carrying costs. Plus, potential buyers of a fix and flip will want to know this figure when trying to calculate how much they can afford on top of their mortgage payments. Higher property taxes could indicate to buyers that the property isn’t affordable, deterring some of them.
Include property taxes when evaluating a potential property, especially the ARV (since this number is part of your carrying costs). Since property taxes are closely tied to the amenities in the area, it’s a good idea to work to balance the potential profit of property and losses due to higher property taxes.
Neighborhood amenities
Proximity to desirable amenities will mean that the property will be in higher demand. These properties are typically close to central business districts, good schools, restaurants, groceries, stores, nightlights, walking trails and parks. The closer the homes are to more amenities, the more desirable it is to home buyers.
You’ll also want to do some digging around to see trends, such as whether the neighborhood is considered an up-and-coming area with plans in place to build more amenities home buyers want.
Job market
Having a house in a strong local economy and a strong job market (especially one that’s growing steadily) means that there will be more demand for housing since it could mean more people are willing to purchase a home, now or in the future.
Of course, the opposite, where there are higher unemployment rates and lower wages, could mean a weaker real estate market, with property values decreasing and fewer home sales.
When looking at statistics related to the job market, don’t forget to look at a neighborhood’s economic diversity. As in, you’ll want a property to be within an area that includes multiple industries instead of one or two—those areas could be more vulnerable economically.
Public school districts
Neighborhoods within a reputable school district or with great public schools could attract home buyers who want to offer quality education for their children. It might also indicate to home buyers that the property values will hold steady or climb in the area, thereby increasing the property’s appeal.
Crime rates
Prospective home buyers want to purchase homes in areas with relatively low crime rates—who wants to be concerned about potential crime issues where they live? When considering an investment property, take some time to look at crime statistics in the area to see whether or not you’re investing in a safe neighborhood.
No matter how good the deal looks, if the property is in an area with high crime, it’s probably not worth it.
Proximity to your contractor
Though it’s not necessarily a major factor, it’s still important to see how close the property is to you and your contractors. Since you and your real estate team need to make multiple site visits, choosing a property that’s within relatively close proximity will save you both time and money. Think about how much gas it’ll take for you to drive or how much time your contractor could be wasting driving instead of working on renovations.
Looking for properties located near major roads or highways will help your contractor reach the property more efficiently. Plus, being near amenities like home improvement stores will likely increase the number of contractors that want to bid on our project—multiple quotes mean potential savings on your overall project.
Where to look for statistics
Now that you know what you need to look for, here are some places where you can start your research.
U.S. Census Bureau
The Census Bureau provides valuable statistics on household size, median income, and other population trends. These can indicate demand for properties and help determine the type of property to purchase.
For instance, if the average household size is five, a property with only two bedrooms may not be ideal. It's also important to consider median income to avoid making renovations that potential buyers won't be able to afford. If you plan to sell a home that's more than two and a half times the average household income, your chances of selling it may be slim.
Real estate professionals
Consulting a real estate professional can provide valuable insights into current neighborhood trends, including how long properties have been on the market and comparable sales data. However, if you hold your own real estate license, you may be able to access this information yourself.
Real estate websites
Real estate websites can provide a wealth of information, including comparables, property taxes, and neighborhood amenities. However, it's important to keep in mind that not all of the data on these sites may be accurate or up-to-date. For instance, estimated home values may not reflect the true market value of a property.
To get a better idea of a property's true value, it may be helpful to consult a real estate professional or access other reliable sources of information. Some popular websites for finding real estate data include Zillow, Redfin, and Realtor.com. Additionally, some property listing websites specialize in foreclosures and short sales, which can be a great way to uncover hidden gems.
Where will you start your search?
Researching your next real estate investment property doesn’t have to be difficult, especially when you know what you’re looking for. It may take some upfront work and a bit more time in the beginning, but it’ll be easier as you get more practice. Besides, it could be worth the time invested since you could land a property with a great ROI.