Investing in real estate can provide a reliable source of additional income if you take your time to select a great property that aligns with your goals, abilities, and budget. Investment properties can yield significant dividends, like tax breaks and equity gains, in addition to the monthly income. If you choose a property that falls outside of what you can handle, though, you might wind up looking at a potential disaster.

Here is an overview of some of the things that you should look for when choosing an investment property and what to expect if you plan to finance its purchase. Together, this guide should help you define what seek in a new investment property and help you to ascertain whether buying and renting it out is viable or not.

How to choose a property

Location

Location is everything. But really, it is. The location you choose has a significant bearing on many areas of your investment experience. For instance, think about your ideal tenants. If you ideally want to rent to a family, you'll have to look near top schools with nearby family-friendly amenities such as parks. If you’re considering a commercial property, make sure it has sufficient traffic.

To make sure your property is occupied at all times, consider purchasing something near a college campus where you might rent to a different student every year. If you’re planning to buy a vacation rental, make sure that it’s close to major attractions. You won’t get premium rates if you’re not in a prime location.

Beyond attracting the type of renter that you’d like to deal with, consider the neighborhood. Are property values in this area appreciating? Even though the goal is to earn a monthly income, you still want your property to maintain or increase its value if you decide to sell in the future. Are crime rates rising or falling? Typically, properties that are in low-quality areas will have higher turnover rates and generally require more work to manage and maintain.

And if you plan to manage the property yourself, how far will you have to travel to maintain it? The context of the neighborhood will help you determine whether the property is worth the risk now and for the long-term.

Condition of the property

Consider what you’re looking for in terms of property condition before you begin your search. If the potential to flip or rehab the house at a substantial gain is there, cautiously consider it. If you’re a handyman or woman or know a trustworthy contractor who will do quality work for a bargain price, then a fixer-upper might be a good place to start. Otherwise, keep it simple. If you’ll have difficulty financing or completing the renovations yourself, then stick to buying a property that’s already in decent shape.

As you pinpoint potential investment locations, make sure to look at them through the eyes of a future tenant rather than those of a home buyer. You don’t need the emotional component of the home buying experience, so put form and function at the top of your list. Make sure that the type of tenant you want to rent your unit will want to rent it.

Also, invest in a home or building inspection for your prospective property so you know in advance precisely what condition your property is in. If you choose to renovate, prepare for the time and expense of those improvements and build in a healthy contingency fund. As you repair properties, you’ll often uncover other problems you’ll need to fix. You have to provide a safe environment, so it’s imperative to fix all the major issues before you lease your property to a tenant.

As you consider a fixer-upper, make sure to implement practical designs that will appeal to a wide range of potential renters. Opt for durable materials that will stand the test of time and perhaps survive multiple renters. This renovation isn’t the time to coordinate a flashy custom paint palette or to waste money on touches that your target rental audience won’t necessarily enjoy. Save the custom renovation for your own house.

Bear in mind that each day that you need to work on the property is one that it won’t be generating income for you. Include the time before your property hits the market as an expense and make sure that you can handle that before you take the fixer-upper plunge.

How to Run the Numbers

Return on Investment

Once you've settled on a location, there are a few quick calculations that you can do to assess the viability of an investment. These will all give you a picture of how sound the investment is. Look at how much you have to invest. Consider how long you plan to own the property and what your potential income needs to be to justify this purchase.

A good rule of thumb as you evaluate the profitability of a property is the 1% rule. Ideally, you want to be able to secure at least 1% of the value of your total investment in fair market rental income each month. If you buy a $150,000 home, then you’ll want to make sure that you can roughly command at least $1,500 in rent each month.

The actual figure will depend on several variables. Though it's challenging to predict maintenance expenses, an older property is likely to require more work while you own it than a brand-new place. If you do not plan to maintain the property yourself, then include the anticipated management costs as one of your expenses to make sure that you still come out ahead. If your property requires HOA fees or other maintenance costs, make sure to include those too.

Other metrics that you can use are the cap rate, which compares the price of the property to the anticipated earnings against the rest of the neighborhood. Another standard metric is the price per square foot, also compared to other homes in the area. These will give you a snapshot of how valuable your property is before you decide to do any further in-depth analysis, like calculating the actual ROI or Return on Investment. At the end of the day, if you can’t take care of the expenses associated with owning and maintaining your investment profit and clear a profit, then you’d be wasting your time.

Down Payment

If you plan to finance any portion of your investment property, know that mortgage requirements for investment properties are different from those of buying your standard family home. The first difference is that you'll have to put down at least 15-20% of the property value as a down payment. You won't be able to get away with putting down 3-10% as you would for a primary family home mortgage loan since your investment property is considered a non-owner-occupied transaction (a house that you don’t plan to live in). Investment properties don’t qualify for mortgage insurance, either, and getting approved requires that you meet stricter approval requirements to secure financing.

Beyond that, the process is similar to obtaining your standard mortgage. The lender will consider your credit score, income, and debt-to-income ratio to make sure that you can handle the added financial pressure of an investment property. Like with your own mortgage, you’ll want to get pre-approved to make sure that it’s a viable proposition. If you can’t pay the down payment required and finance the costs of renovating the property, then you should consider another property.

Investment Mortgages

You should also expect that interest rates for your investment property mortgage might be between 0.50% to 0.75% higher than what you might get if you were seeking a primary mortgage. Just like any mortgage, you’ll want to make sure you're getting the best deal. Lenders will look at a few important considerations as they evaluate your loan. The first thing is the type of property that you're looking to buy. Multi-family properties with 2-4 units will add another 0.125%-0.25% onto the standard investment mortgage interest rate. Additionally, they'll consider your credit-worthiness and the amount of your down payment. A higher credit score and larger down payment can lead to a more favorable interest rate.

These qualifications are a little stricter than a primary mortgage because research shows that if you own an investment property and fall on hard times, you’d rather default on that loan than on the one that secures your own dwelling. Since owning an investment property is essentially owning a business, owners aren’t as attached to the property, making lending for an investment property a riskier proposition for lenders.

Make sure that you’re not carrying a lot of debt in proportion to your income and cash reserves. Your finances will be reviewed even more thoroughly when you apply for an investment mortgage than your mortgage application. Lenders just want to make sure that you have the funds to pay off their loan (and cash reserves to pay for the mortgage even if you don't have tenants) and handle any expenses, so they don't have to deal with any repercussions like default or foreclosure down the line.

If you've never owned a home or managed property, it'll be more difficult to secure an investment mortgage. If that's the case, some lenders will let you hire a property manager to shore up your application.

Property Taxes

Also, pay attention to the property tax rates and appraised values of properties that you may buy. Property taxes are a considerable expense that you need to include in your calculations when you determine if your investment is viable. Property Taxes may increase over time, so familiarize yourself with what you may need to pay on the property in the future.

Purchasing an investment property is a big decision, and choosing the right property is essential to earning a nice return on your investment. Prioritize selecting a convenient location and property that will attract the types of renters that you would like to have. Look for homes in safe neighborhoods with the potential to appreciate.

If you have the skills to brave a fixer-upper, make sure that you consider all of the costs and brace yourself for any eventualities. If renovation skills aren’t in your wheel-house, the entire experience may cost you more than you’d expect. Regardless, make sure you get a home inspection so that you know what you’re getting into.

As you consider the potential income of a given property, you can use the 1% rule to assess if the rent justifies the purchase price quickly. To calculate the return on investment, you'll need a good handle on what expenses you'll incur, like property taxes or management fees, as well as any financing charges if you plan to seek a mortgage. If you plan to finance your investment property, be prepared for stricter qualification requirements and more intense scrutiny of your finances, than you would if you were seeking a primary mortgage. Lenders consider investment mortgages to be higher risk, so anticipate a higher interest rate and larger down payment, too.

Even with all of that to consider, investment properties can bring in a substantial, steady stream of income if you choose wisely. If you are financially stable with good credit and care to invest a bit of time and attention to choosing and caring for your property, you can become a bona fide real estate investor.

For additional assistance with picking out your ideal investment property, feel free to reach out to Realty Executives by calling (866) 742-5732 or emailing us at ClientCare@RealtyExecutives.com.

The time comes in most homeowners’ lives when they begin to consider moving out of their house. Whether it’s to relocate for work, upgrade to a larger floor plan, or move into the home of their dreams, sometimes it’s just time to sell!

Whatever the reason, there’s one question at the front of most homeowners’ minds:

“How do I get the best price for my home?”

Navigating the housing market, preparing a home for sale, and knowing what price to ask or what offers to accept can seem overwhelming. Luckily, homeowners aren’t in this alone—local, knowledgeable Realtor® can assist in everything from home preparation and stageing to understanding the marketplace. Your Realtor® can combine their skill sets to help home sellers maximize their property’s sale price, even in a tumultuous real estate market. With their help and the five home tips below, attaining a high price on a home for sale may not only be feasible but even easy!

Before selling a home, the following tips will help homeowners to ensure that they’re maximizing the property’s sale price:

1. Homeowners should take steps to understand the current state of their local real estate market before listing their home.

The housing market is as unpredictable as any other market out there, but with some expert advice and help from a real estate professional, homeowners can nail down a solid idea of their local market’s condition before listing their home for sale. Even having a general idea of whether or not the market is hot can make all the difference in helping a seller determine whether they should immediately list their home or bide their time and wait.

For example, a real estate market might be considered “hot” in a particular area when there are more home buyers than listings. Thinking about this from an economical perspective leads to, at its simplest, an analysis of supply and demand. When any commodity is in low supply compared to the number of buyers, the value of that commodity will rise. The same is true for houses!

A hot market with fewer homes for sale and a high number of interested buyers means that sellers can get away with charging more for their home and still obtain a successful sale. This situation is also called a seller’s market, whereas the opposite (when there are more homes for sale than buyers and home prices decline) is called a buyer’s market.

While the economy is such that there are hot markets all over the country, home sellers should still account for the ebb and flow of their own local market for the best results. Those who sell when the market is hottest will be justified in asking a higher price for their home and, in the end, maximizing the resulting sale price.

2. Making necessary home improvements to a house before listing it for sale will greatly increase its value and appeal to potential buyers.

In most cases, a home buyer doesn’t want to purchase a house only to spend additional time and money on renovations and improvements. The most attractive homes (and therefore the ones which will receive the highest offers) are the ones that are move-in ready.

As with everything else, there’s a balance to strike here. Making major home improvements will certainly increase the home’s value, but spending too much money on these updates and renovations may begin to drain a seller’s pockets more than they can be replenished by a maximized sale price. As a result, it’s best to stick to minor and straightforward home improvements which won’t make a huge dent in the seller’s finances. The goal should be to make the home more desirable, not perfect.
So, how do homeowners know where to begin?

Various home improvement projects will bring more value to a home in some markets than others. Sellers can use tools such as a home improvement value calculator to determine which projects will add the most to a home’s value in their particular city, or they can use averaged data to make an educated decision about the improvements they make to their home.

HGTV lists a minor bathroom remodel as the best home update to make prior to sale, with an average return of 102%. That’s right—not only will an updated bathroom (including bathtub, sink, toilet, vanity, and flooring) make a home much more attractive to potential buyers, but homeowners are likely to make more in their resale than the cost of the remodel itself.

Other home improvement projects with high returns include:

• A fresh coat of paint on both the inside and outside of the home
• Fresh landscaping
• Updated light fixtures
• New flooring, particularly in areas of high traffic and increased wear

After addressing aspects of the home in need of obvious attention, sellers will be much more justified in asking a higher price for their home.

3. Before listing their home, homeowners can maximize their chances of selling their home for the highest possible price by working with their Realtor® to get a comparative market analysis.

When homeowners list their properties with a real estate company, it is common practice for a real estate agent to perform a comparative market analysis before setting an asking price. A comparative market analysis is a way for real estate agents and homeowners to look at similar homes in the same area which have recently sold. An examination of the prices at which these comparable properties sold will provide insight regarding an appropriate listing price.

This analysis will not only make it more likely for a home to sell but it can also help those selling their homes to maximize their profits and avoid accidentally setting a price point that undervalues the property.

Some might say that this comparative market analysis is an alternative to requesting a professional appraisal of the home and its property. Real estate agents performing the analysis will take into account factors such as location relative to important landmarks like schools and shopping, the quality of a neighborhood, estimates of the property value, and the number of comparable homes that have sold, expired, or are undergoing pending sale.

Comparable homes included in the analysis include houses with a similar square footage, the same number of bedrooms and bathrooms, the same school zone assignment, a similar lot size, and a similar age.

The more similar homes (called “comps” in the industry) that a Realtor® examines, the more accurately they can determine an appropriate listing price for a home; even just three comps should be enough, though, if the home is unique and without many similar partners in the recent market.

It is important for homeowners to work with a Realtor® who will will provide a complimentary comparative market analysis to an interested seller. Included with the analysis will be a marketing plan for the home once the property is listed for sale in the multiple listing service (MLS).

4. Work with your Realtor® to agree on a successful marketing strategy.

As a homeowner interested in maximizing the sale price of your home, it is critical that your Realtor® has a complete marketing strategy to provide your home with the greatest exposure. Your real estate agent will develop a written marketing strategy and implement the plan as soon as your home is listed for sale.

Sellers, in fact, can be in a position to make their own contributions.

Selling a house is hardly different from selling any other good or service—that is to say that many aspects of marketing and advertising will be the same. The core of the matter is the generation of interest and excitement about a home.

For example, homeowners can work with their Realtor®s to:

• Share with your real estate agent what it is that attracted you to your home. What in your opinion are the best features of your home and what benefit did your family derive from those features. This will assist your agent in knocking the home’s description out of the park. By using ad copy that highlights the best features of the home and its location, your Realtor® can invoke emotion and excitement in potential buyers even in a home that’s priced higher than its market average.
• Maintain interest with retargeting. Retargeting is an online process your agent can utilize that attaches a pixel to visitors of a web page—in this case, anyone who spends some time browsing your home’s listing. Once this pixel is attached, these users will begin to see pictures of your home listing on ads as they browse the web. These ads create additional reminders and visual prompts that may get potential buyers thinking twice about your listing.
• Advertise their home for sale on social media. That's right—Facebook isn’t just for messaging Grandma these days! Facebook, in particular, is equipped with ad features that allow Realtor®s and home sellers to hone in on users who become their most likely buyers. Advertising a home smartly online is a must.
• A knowledgeable Realtor® will ensure that home photographs are professionally shot and edited for the most ad-worthy results. Experts recommend, for example, that a virtual tour of a home begins with a street view of the house and end with the backyard. This takes listing visitors on a journey of the home from start to finish, even prior to seeing the home in person. Plus, the returns of professional photos are staggering—listings with photos taken by a pro are liable to sell anywhere from $934 to $116,076 higher than similar listings without a professional photo strip.

5. Home staging can make all the difference in the way that a home buyer perceives a house and makes an offer.

Believe it or not, there’s some proven psychology behind every sale—this is especially true for home sales! As a home buyer attends an open house or a private viewing, they’ll connect more with a home that looks furnished and lived in rather than a barren landscape of square rooms, plain walls, and empty floors. Your Realtor® can make professional recommendations for proper home staging.

Please take note that “lived in,” in this case, does not mean that it's okay to have some clutter or mess around the house. The home’s interior should still be immaculate, but a home stager will know how to turn a bland house into a cozy home. They’ll choose and arrange furniture sets which will bring the best out of each room in the house.

Then, when a potential buyer is touring the home during a showing, the psychology of this staging comes into play. As an interested party peruses the home, they’re likely to imagine themselves occupying the space—well-placed furniture and atmospheric (but neutral) home décor will help them to do just that!

“I could see myself sitting on that couch,” they might think, and that’s where the attachment to the home and the drive to offer a higher price kicks in.

Also, many homeowners make the mistake of forgetting to discuss matters of lighting when planning their home staging. The source and quality of light can make all the difference in how staged furniture is perceived during a showing. The Rule of Three is a good place to start:
Three light sources in each room will help to make the space feel bright and open.

With these strategies and more, homeowners and their Realtor® augment the appeal of a home and expand the list of potential buyers so that they can attain a higher sale price.

Heeding all of this advice at once may seem like a lot of effort, but it doesn’t have to be difficult! With the help of your Realtor®, your will have a team of professional photographers, stagers, writes and marketing experts working for you. Your powerful team is dedicated to getting you the highest price in the least amount of time.

For questions about selling your home, call Realty Executives Exceptional Realtors® at (866) 742-5732 or email us at ClientCare@RealtyExecutives.com.

September 19, 2019 - new Kinnelon office location Grand Opening Celebration and Ribbon Cutting Ceremony. Thanks to Front Door Photography, LLC. for capturing this special day with photos and video!

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