As the housing market continues to thrive, buying a residential investment property may be the right choice for you – but how do you search effectively to find the ideal property? This guide explains.
Buying a Residential Investment Property: The Basics
When you’re ready to buy a residential investment property, you have to consider:
- Whether you want yield or growth
- How much you’ll end up spending on the property
- Whether you want to flip the property or rent it to a tenant
Here’s a closer look at each.
Considering Location When You Buy a Residential Investment Property
You’ve always heard that location is important in real estate, but can be especially important for rental properties. If you intend to work on the property yourself, or if you intend to manage it when you rent it to tenants, you’ll want something close by – long-distance trips become tiresome quickly.
But it’s not just about you driving to and from the property. It’s also about whether a tenant will find the location beneficial. Generally, the farther a property is located from the city, the less lucrative it is for the property owner; rents are lower, and the tenant pool may be smaller, as well.
Do You Want Yield or Growth?
Yield (rate of return) is annual income divided by cost, and growth is value rising over time (appreciation). Your goal will determine what type of residential investment property you need. If you’re looking for yield, many experts suggest buying the biggest property in the best location, but if you’re looking for growth over time, you should look at properties in up-and-coming neighborhoods. Your Silicon Valley REALTOR® can help you find properties that meet your needs in either case.
How Much Will the Property Cost?
There’s always more than meets the eye when you buy an investment property. Remember:
- Adjustable rate mortgages mean cost fluctuations after the initial period is complete
- Taxes increase with value
- Property maintenance costs more as a home ages
- Tenants move out, or in some cases, default on payments, and that reduces the income you generate
- Repairs and upgrades that get the property in the right condition to flip or rent can be expensive
You have to look at the whole picture. To calculate your return on investment, or ROI, divide your return by your total expense.
Deciding Whether to Flip or Rent
If you’re like most people, you know that house-flipping is risky business. You may make a killing – or you may barely break even. Several factors (many of which are out of your control) will affect how much of a profit you can pull in by flipping a home. Ideally, if flipping is your goal, you’ll want to:
- Choose a structurally sound but poorly upkept property that simply needs a few repairs and upgrades
- Find a home listed well below its after-repaired value, or ARV
- Sell the home quickly after repairs are complete to avoid financing costs
For many people, fixing up and renting out a home is a better (albeit slower) way to generate a profit. You can vet your tenants, charge rent that’s higher than your monthly mortgage payment, and keep up with the property as it ages.
Ready to Buy or Sell a Duplex, Triplex or Fourplex in Silicon Valley?
If you’re looking to start investing today, want to discuss your options, or are selling a duplex, triplex or fourplex in Campbell, Cambrian Park, Los Gatos, San Jose, Santa Clara, Saratoga, Willow Glen or another community in Silicon Valley, we’re here to help. Find out about our innovative marketing plans that can put your investment property in front of all the right buyers. Simply click here to set an appointment, call or text Debbie at 408-210-2400, or send an email to Debbie@PropertiesInSiliconValley.com.
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