Rental markets in real estate are virtually everywhere. Because of this, there are investment opportunities everywhere you look. Before you break into a market and invest in real estate, you first must look at a number of factors that determine if a specific property is worth the investment.
Everywhere you look there are opportunities. Without information about what gives any given opportunity high profit potential, you may enter a high risk situation. If you are truly interested in creating a portfolio of investment real estate, look at the following to determine if a market is a good investment.
Local Community Outlook
It is wise to look into the profile of the community where you are interested in investing. The current local economy and economic forecast are important factors to consider. Is there growth in local businesses? What type of new construction is going on in the area? Has the population grown or decreased?
All of these questions are important for you to determine what the local economy is like what its future looks like. If the population is rapidly decreasing then the residential inventory (available properties for rent or sale) will be more competitive, giving you less opportunity for profit. Look for communities with population growth or other signs of growth in the area that will bring population.
Of course you always have to pay attention to the price point in any real estate investment. As Shobhit Seth writes in Investopedia, it’s important to pay close attention to comparable properties in your market. The comparable properties should be as close in size, age and location as possible to your potential investment. Beyond just this, you have to also consider rental potential comparable to what you will spend to obtain the property. It is not always about getting the cheapest property, especially if the potential rent is considerably greater for a more expensive one. Look outside your own market and into other markets that have higher rents for a better investment to profit ratio.
It’s not always at the front of an investor’s mind, but the strength of the local government and their ability to support the real estate market is crucial. Determining what the local government is doing to entice new business to come into the community is a great first step.
Determine if the schools are successful and well supported. Find out what the local property taxes are in the community. You’ll also want to look at the process and legal requirements in the community pertaining to real estate. Zoning, building codes, etc. are all local decisions and differ a bit in each community. Some communities make it easier for investors that others.
Any investment advisor will tell you that diversification is important to minimize risk. If you put all your eggs into one basket and then the bottom falls out, you have lost all your eggs. It works the same in real estate investment. There are lots of different markets and different types of real estate. Don’t allow yourself to get all of your investment in one market and one type of real estate.
Market diversity also includes different levels of property. Having a mixture of more affordable rental property as well as the middle and high range helps to spread your risk against local economic downturn.
These aren’t the only things to consider when determining where to invest in real estate, but they are definitely some major factors that deserve a look. Management of investment real estate is also worth consideration. Finding quality management for day-to-day operation is very important so you can spend your time expanding your portfolio. Contact Reedy and Company Realtors to get the help you need in managing your investment properties in the Memphis area.