Investment properties make money for investors every day. However, not every property deal has the potential to turn a profit. For this reason, it is important to evaluate any investment property deal before making a commitment. Applying a few simple investment property tips can help you avoid the more obvious pitfalls and thus increase your chances of earning a healthy return.
With both residential and commercial investment properties, it is a good idea to conduct a title search before entering into any serious discussions about acquisition. The goal is to make sure the title is perfectly clear, and there is no chance of someone coming along later that has a valid claim to ownership. Of all the basic investment property tips, this is the one that can quickly derail what is otherwise a promising investment and leave the investor with nothing.
Along with the title search, it is a good idea to look into the current status of taxes and liens associated with the property. One of the most important investment property tips is to look at what must be paid in order to acquire the property. If there are liens or some outstanding taxes associated with the property, add that to the purchase price. This will allow you to see if the up-front investment is low enough to improve the property and still make a decent profit from the venture.
Keep in mind that you also want to know what type of tax you will pay while you own the property. Laws regarding investment property taxes vary from one jurisdiction to another. Make sure you consider the tax burden that you will assume for as long as you own the property. This is true even if you plan on fixing up the property and selling it within a few months.
Another of the more important investment property tips has to do with location. The property may be well-kept and require little in the way of enhancement, but if the area is declining, there is a good chance you will never recoup your investment, much less make a profit. Instead, look for property investments in areas where the value of property is anticipated to rise. Buying property that is poor condition but in an area where property values are about to increase dramatically will mean you spend more in repairs and upgrades, but the effort has a much better chance of paying off in a big way.
Financing is also among the several fundamental investment property tips that you must consider. Ideally, the investor can arrange financing that covers the cost of acquisition, repairs, and taxes while the property is improved. This creates a situation where the balance can be paid off in full when the property is sold at a profit shortly after the completion of the renovations, or that payments on the loan do not begin until the property is occupied and generating revenue. While this may take some effort to arrange, savvy investors who have a track record of earning money with investment properties can usually secure these types of arrangements with little or no trouble.