Choosing a property for investment is a task that should be approached with a great deal of consideration and thought. Since the idea is to generate some sort of return for the effort, there are a number of issues to address when thinking about acquiring any type of investment property. These include identifying the type of property required, the circumstances relevant to that property, and the rate of return that can be reasonably expected in the current market situation.
The first step in evaluating a property for investment is to determine if that property is right for the investment activity that the investor has in mind. For example, if the goal is to purchase property with the goal of leasing or renting the real estate and generating a steady revenue stream, it is important to assess the ability of that property to attract tenants who will remain in place for an equitable period of time. With commercial investment properties, this means attracting business owners who will be willing to sign leases for two to five years. For residential properties, such as rental houses or apartment buildings, the goal may be to purchase the property, utilize the revenue stream to pay off the mortgage, and then begin to benefit from that revenue stream until the holding can be sold at a profit above the original purchase price.
Along with knowing what you want in the property for investment, it’s a good idea to make sure that the timing and location are right. The structure may be ideal in terms of condition and amenities, but if the location is no longer desirable, earning a return may be somewhat difficult. This can actually work to the advantage of the investor, if there is a real possibility that property values in the area will increase significantly over the next several years, and the investor can afford to hold onto that property in the interim. If that is not the case, and there is little to no potential for recouping the original investment and earning a profit, the investor would do well to seek opportunities elsewhere.
The desired rate of return is also important when looking at a property for investment. Many holdings have the ability to earn a modest but consistent profit over time. If the investor is happy with that type of return, then the deal is worthy of consideration. For property investments, such as house flipping, where the goal is to buy cheap, make repairs, and sell at a profit within three to six months, earning a little return each month over several years is not the best choice. How much and how fast the return can be generated is a crucial factor to investigate when looking at any property for investment.
Keep in mind a property for investment that is all wrong for one investor may be the ideal vehicle for another. Depending on the goals in terms of generating quick profit or creating an ongoing revenue stream, finding the right type of property for investment does take time. By defining goals and evaluating the potential of the property under consideration, it is much easier to determine if a given holding will create the desired results, or if the investor should abandon the idea and focus his or her attention on other property offerings.