Investment properties can be a great source of income for those willing to take on the challenge. Purchasing homes in order to rent them out or to renovate them and then sell them for profit are two common ways to make money on real estate. However, making money on these deals can be difficult if the property is purchased for too high a price or if it doesn't sale or rent easily. Here are three things that should be considered before purchasing an investment property.
There are a variety of things that people consider when purchasing or renting a home. Size, cost, and style are all big factors in these decisions. Another thing that is a factor is school district. Potential real estate investors may make the mistake of underestimating how much being in a certain school district can affect the value of a home. A Realtor.com survey recently found that a whopping 91% of home buyers feel that school boundaries are important when searching for a new home. For any investor who is looking to purchase a home, research on what school district it falls into is a must. The wrong school district can make a home difficult to sell.
Supply and demand is one of the key factors of any real estate market. Too much supply can drive down the value of homes for sale. Higher demand can actually increase property values. One way to determine whether or not a home may be a good investment is by anticipating future development. If a home is in an area that is set to have many new homes built around it, then it may not be a good investment. However, if it is in an area that is expected to have commercial development in surrounding areas, then it may see its value go up. Amenities such as grocery stores and movie theaters can actually raise the value of surrounding properties anywhere from 14 to 30 percent.
When looking at homes for sale, many investors look solely at the condition of the home without considering the land underneath. Even a run down home can be a fantastic investment if it's in the right spot. On average, home prices appreciate at somewhere between 3 and 5% each year. In some areas, that number can be even greater. In areas where land appreciate faster, a full scale renovation may actually be worth the investment. Or tearing down a home and just selling the land after a few years may also net a profit in high demand areas.
Purchasing a home as an investment can be a great way to put money in the bank. However, it's not as easy as purchasing a home and then either renting it or renovating, then selling. Things such as school district, surrounding development, and land appreciation can play big roles in home value, so keep this in mind as you check out homes for sale.