Most real estate investors buy properties with the expectation of making money now or later. Here’s how to find an income generating property.
How do you find an income generating property?
The preparation before investing in real estate is essential. You need to define your goals, what kind of property you want, and what you can afford. Now it’s time to target a property and decide if it makes financial sense for your situation.
Since there’s no single way to make money in real estate, the ways you generate income will vary depending on your strategy. However, there are steps that you can take as a buy-and-hold investor to point you in the right direction. Here are a few ideas for what to look for in your next income generating property.
It starts with purchase price
There’s an old saying, “you make your profit when you buy.” That stays true even in today’s real estate market, which is why you need to understand the term “instant appreciation.”
Finding a great deal sets you up for success because you see the potential in a property. Investors bet on their own wisdom and knowledge that the value of their property will increase in the future. Some investors will pay more if they see upside beyond the purchase price or see trends in emerging markets that can help a property increase in value. Knowing what to pay is a great place to start.
Through your own research you can generate income by staying ahead of the competition.
Determine your buy-box
Sundae brings investors deals daily and there are other resources like the Multiple Listing Service (MLS). Collectively, there are new properties for sale in any given week.
At some point you have to narrow down properties and create a smooth property searching process. We call this a buy-box. This may include your desired location, property type, features, and anything else that will make your income generating property goal feel achievable.
You can start with location by finding cities or towns with the most potential. You might decide, “I only want properties in Charleston” which is going to help you hone in.
Once you have a clear definition of your town or city, break down neighborhoods and study listing or rent prices. Keep your end in mind, whether renting or reselling.
Maybe you’ll familiarize yourself with five neighborhoods in a city and dig deep. Now, it’s not thousands of properties for sale anymore, it’s a hundred or even less. You can easily see where a property lies by searching the address, then look at pictures or Google Earth to get a feel for the area.
Buy-and-hold investors are different from home flippers. A flipper will likely look for ways to add value in single-family homes or condos, but many buy-and-hold investors have success with these property types as well. Many buy-and-hold investors focus on multi-family style homes for cashflow and pay attention to the number of units. Whatever your desired property type and strategy are, use this to inform your decisions.
Finding your ideal property type is largely a personal preference that suits your business strategy. Are you looking for an older property that needs some renovation projects done? Or perhaps you want a new turnkey rental property because you don’t have the time to deal with upgrades.
There’s no wrong answer, but having a clear definition of what you want helps you find an income generating property. For example, you won’t be telling others, “I’m looking for an income generating property for sale,” it needs to be way more specific. Once you know your property type, here’s the details you could provide now:
“I’m searching for an income generating property for sale, here’s my preferences: a four unit multi-family, built in 2000 or newer with at least 2 bedrooms and 1 bathroom per unit in the University Square neighborhood in Tampa.”
Be sure to narrow down your criteria to a place where there are still deals to be found, but where you can be specific enough to have a focus area.
You need to understand numbers to have success as an investor. As a flipper, there are certain metrics you’ll need to know and rental properties will have others.
For example, rental income is going to be an income source for you, you’ll want to know how it’s maximized. Study the average rents in your city and your neighborhood. Before you even purchase, know that the potential rent could cover your mortgage, taxes, and other costs. You can probably find historic trends and notice if rent has been increasing or decreasing over the past few years.
By knowing your target market and strategy, you’ll be able to apply financial sense to each opportunity. Be sure to learn the numbers to define a good investment and a bad one.
Additional tips for finding an income generating property
Real estate is a challenging business with so many factors that could make or break your investment. Performing detailed research is a crucial aspect of finding your ideal income generating property. Here’s some other factors that buy-and-hold investors should keep in mind.
Search for indicators of growth surrounding your desired rental property. Are there gyms, public parks, quality restaurants and accessible public transportation nearby? These types of amenities are attractive to inbound renters.
It’s an important rate for any property owner. The vacancy rate tells you the time that a property was rented compared to the time it was empty. Lower vacancy rates indicate that the neighborhood is desirable with a higher demand for rent. They vary from each market and it makes your assessment more accurate.
Your area might be going through a period of growth. While this is a good sign because your neighborhood’s value could grow, it’s also important to be careful. Any development plans happening right next to your property is going to cause more renting competition. If your area already has vacancies, further competition is going to be a challenge.
Find your next income generating property
We know that buy-and-hold investors are looking to purchase rental properties fast in this competitive market. One way you can achieve this is by buying off-market. Sundae’s Marketplace brings thousands of investors together where deals can made in a matter of days or weeks. Find your income generating property with confidence and with plenty of options at your disposal.
Rob Marini is a content writer for Sundae who also produces content for real estate agents, investors, and prop tech companies across the country. He works as a digital marketing specialist in Connecticut, where he resides. When he’s not designing content or learning about real estate, you can find him podcasting, playing the guitar, or watching the Philadelphia Eagles.