How do I Choose Investment Property to Buy?

Buying properties for the purpose of real estate investment can be a fascinating, and often profitable, way to focus an investment portfolio. Choosing the best investment property to buy will depend on the overall investment strategy; a person who wants a long-term return will likely choose different investment property to buy than a person who wants to flip a house for a fast profit. External factors, such as the market and region, can also greatly impact the best type of investment property to buy.

One factor that can be important when choosing investment property to buy can be regional laws regarding ownership, use, and rentals. Every state or region may have its own specific laws about zoning, use, and even landlord/tenant rights. It is very important to do considerable research on the legal aspect of this type of investing before getting started. A thorough understanding of applicable real estate law can help narrow down choices about which type of investment property to buy.

Many new real estate investors choose residential investment property to buy, since it often provides the simplest way of generating positive cash flow. Apartments or rental homes allow the investor to generate income while doing very little besides occasional maintenance. When choosing which residential investment property to buy, consider studying real estate markets where demand is consistently high. If there is always a need for housing, tenancy may be more constant and rental rates may be more favorable to the investor.

Regardless of what type of investment property is being purchased, the neighborhood, economy, and community surrounding the property may be even more important to consider than the merits of the property itself. Buying a steel factory in a town that hasn't had a metalworking industry in 40 years may be cheap, but it may end up being as profitable as pouring money into a hole in the ground. When examining possible investment sites, it is important to pay attention to what the community has, what it may have too much of, and what it needs.

Though investment property can be a great earner, there are some associated costs that may make it a risky or even prohibitive venture. Mortgage interest, maintenance costs, property insurance, and costs for utilities and repairs following a vacancy can make profits disappear very quickly. Doing a risk assessment before buying can help estimate how much the property could potentially cost versus how much is likely to be earned. A risk evaluation can help ensure that investors only choose investment property to buy that they can actually afford.