Whether purchasing a single-family home, duplex or other multi-family complex, you have to make it pay off. In other words, you have to treat the purchase just like a business, performing marketing and advertising, making the property (inside and outside) look attractive, and treating the tenants fairly and according to local, state and federal landlord-tenant laws. Inside, we offer three ways to make certain your investment property will pay off.
The downtrodden market of the past made from some stellar residential investment property purchases. Buy right, purchasing a single-family home, duplex or apartment complex with a low capitalization or cap rate to make the investment lucrative. The cap rate is important to understand and differs per property.
Before you even think about investing in real estate, it is important that you understand what a capitalization cap rate is and how it factors into the real estate investment purchase. A cap rate is a ratio of the annual net income to purchase price. The lower the operating costs, the higher the cap rate, so a high cap rate is preferable. Look for current average multifamily cap rate of 4.9 in Boston, for instance, but averages change with the real estate market. It's more difficult to figure average area cap rates for four or fewer units.
Owning residential investment property is still all about location, location, location, as the saying goes. Prior to purchasing, know the local market to ascertain if there is a demand for the type of rental property you are considering. Also, research the price range that will bring in renters. Lack of demand or too high a rental rate equates to long periods of time with no tenant and no income. Long-term unoccupied properties breed crime and appear run down, further keeping potential tenants away.
Have and grow your contact base. Always keep reputable contacts for building and maintenance contractors, real estate attorneys and accountants, and property management companies that will help you run your business smoothly with their services or counseling. Budget in those costs when calculating if the property is a profitable and wise buy.
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