03.25.15

Tips on Buying Your First Investment Property

Where To Start?
​At first glance, it might seem fairly easy to locate and purchase an investment property with a strong cash flow/ROI. However, there are several important factors that first-time buyers need to consider before moving forward.

 

1. Location
The key to finding a perfect investment property is to pinpoint neighborhoods that are up-and-coming, not the ones where properties are already at peak value. Once you have established which neighborhoods meet this criteria, look for the best property on the worst block. (an older property in need of minor repairs/upgrades surrounded by brand new million dollar homes is a perfect example.) In addition, look for all the things that you, as someone who could potentially be living in the building would require including: close proximity to transportation, restaurants, nightlife, grocery stores, etc. Once you do this, look for red flags: does the building border a train line, is it next to a dog daycare common-area fence, do some of the buildings on the block look unkept? If you are seeing these red flags, walk away.

 

2. What Is The Condition of the Property?
Look for properties with “good bones.” This includes dry basements with high ceilings, newer roof, solid siding, good electrical and plumbing, etc. Even when you think something is a cheap fix, it almost always costs more than what you might think.

 

3. Do The Math
Understand all your costs associated with the purchase and ongoing ownership before moving forward. Costs include principal payment, interest on payments, taxes, insurance (PITA), maintenance, repairs, common area utilities, etc. A 2-4 or 5+ building is almost always a better long-term investment than a single-unit condo.

 

The Cap rate is the industry preferred terminology used to determine a rate of an investor’s potential return on a real estate investment property based on the expected income that the property will generate. This is done by dividing the income the property will generate (after fixed and variable costs) by the total value of the property.

Capitalization Rate = Yearly Income/Total Value

Do you need help buying your investment property or would like further information on up-and-coming Chicago neighborhoods ripe for investment? Please visit www.JohnMcGeown.com for more information.

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