Of course, the main criteria would be a high capitalization rate (cap rate). A very simplistic example of this would be a property that sold for $100,000 and produced a $1,000 monthly rental income. That would equate to an annual $12,000 rental income or a 12% cap rate (12,000 ÷ 100,000). Naturally, these figures are to be considered as NET, after all costs and expenses are deducted. In reality, a cap rate of around 6-8% would be more attainable. Want to learn more about cap rates...
Real Estate Investments
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Rental properties are most common buy and hold investments in the real estate industry. The savvy investor will gather all the information required and consider all the facts along with his or her objectives before moving forward.
“Buy and holds” are for investors who wish to diversify their portfolios with more long-term investments and would like take advantage of the tax deductions in the process. They seek properties that are not only a great buy, but markets that can produce good rental rates and fast occupancy. Local markets should also have a history of stable tenants with low turnover rates.
Location, location... NOT in the equation?
We are all quite familiar with the old adage “location, location, location” when buying real estate, especially for a business or personal residence. But what about for rental income properties?
In some cases, this adage may not apply. In fact, it can actually be quite the opposite when looking for long-term buy and hold rental investments with the higher cap rates. Consider the fact that some of the best deals can be found in the less desirable areas. If you can couple this with a market that produces a history of good rental rates and low turnovers, then you could reasonably expect a higher cap rate.
Weigh the balances and plan ahead
Just be sure to weigh all of the balances and carefully consider all of the expenses that you’ll need to subtract in order to come up with your true net. Be sure to include fix up and repair costs, ongoing maintenance fees, property management fees (if not handling this on your own), occupancy rates and so on. Prepare for the unexpected. As with any long term investment, be prepared to weather the storms since markets can change and rents can fluctuate. Tip: Be fair with your rates, especially with good tenants – they are like gold...
How to find the “ideal” investment property
Depending on your budget and investment goals, you may be considering a “high yield, slow sell asset” such as a large apartment building. These higher priced investments can be slower to liquidate, but generally the rental income produced can result in a great cap rate.
Others may be more comfortable with a “quick liquidating asset” such as a rental house or duplex. Some immediate equity and a strong rental income and occupancy history can result in a good ROI. This is great for those who might need to make a quick sale to liquefy some assets or shift things around in their portfolios.
Your best bet?
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