9 Questions to Ask When Purchasing an Investment Property
Updated: Oct 8, 2021
If you are looking for ways to diversify your investments, build additional streams of income, or put your home’s equity to work for the long-term, you may be considering a real estate investment. While you may think that this is a simple process of identifying a likely property and posting an ad for a renter, there’s actually much more to the process. Here are nine questions you should ask yourself as you begin developing your real estate investment portfolio.
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1. What type of real estate investment model will you pursue?
There are a variety of ways to invest in real estate. You may choose to purchase an undervalued property, fix it up, then offer it for resale. This short-term investment is called a fix-and-flip. Alternatively, if you identify a property that you may want to keep long-term, especially if it’s in a good rental market like a college town or close to a military base, you may want to pursue a buy-and-hold strategy. If you are focused on a resort area or a popular vacation spot, you may be interested in a short-term rental or Airbnb investment.
2. What types of updates are needed for a flip?
Generally, you’ll want to add value to a flip while keeping a close eye on profitability. You’ll need to complete any needed repairs and updates quickly in order to minimize the carrying costs of the property, including mortgage payments, insurance, and taxes.
Often, flippers will favor low-cost, high-impact cosmetic improvements to enhance the marketability of the property and increase its appeal to potential buyers. Remember, you are not choosing fixtures and finishes based on your own personal preferences. Let cost, availability, and market impact guide your choices.