Smaller investment properties often offer significant financial / economic benefits, in terms of creating a combination of asset growth, return on investment, and some degree of security! However, this is only true if the buyer first fully understands what to look for and why! Different potential properties, have, variant, potential, for optimal performance, etc! While not everyone can consistently support, afford or get involved in major real estate transactions / purchases, many more are able to take advantage of smaller properties etc. four, family / unit, houses and, while some offer great investments, others still cannot! With that in mind, this article will attempt, briefly, to examine, examine, examine and discuss 4 important, significant, main / essential considerations and assessments.
1. Cash flow: Cash flow, when it comes to these, usually refers to the difference between funds / income received and monthly costs. It is important to consider them, in a careful manner, basing the valuations, not on the highest potential rents, but on the market-based rents, and, not more than 75% occupancy (to avoid, a potential, cash – overwrite, if there are interruptions, due to a variety of possibilities / contingencies). In addition, the investor must be careful that his personal cash flow does not suffer, by using too high a percentage of his reserves, for the initial costs, as well as the constitution of reserves, etc!
2. Area / neighborhood / local market: Before you take the plunge, carefully examine and assess the local real estate market conditions and learn about the rental market in terms of availability, demand, advantages and / or disadvantages! Know the specific area inside out and determine, if it offers, the best scenario for you, as well as your priorities and goals!
3. The 6% rule: Many pay close attention to what is often referred to as the 6% rule when it comes to purchasing smaller investment properties. This means that three-quarters of a realistic rent-roll must reach at least six percent of profit. Expenses should include: mortgage related expenses, including principal, interest, taxes and escrow; owner – paid utilities; repairs; renovations; upgrades, and reserves, etc.
4. State of the property: Understand the current state of the property in question and what will need to be addressed immediately, in the interim and longer term. The reserve funds, must be used, and prepared, for as many contingencies, as foreseeable, etc! On the other hand, do not let yourself be too influenced by the staging and overestimation of rents!
After more than 15 years as a Certified Real Estate Seller in New York State, I firmly believe in the possibilities and benefits of investing in smaller investment properties, but, only, when done, carefully, and in a targeted manner! The smarter you go, the better!