As real estate investors we all have different objectives and goals that we look to meet or reach.
It is critical for us to look over all the important numbers of a given property before buying. We need to look at cap rates, return on investment (ROI), gross scheduled income (GSI), net operating income (NOI), cash flow, cash on cash return (COC), operating expenses, etc.
While all of these numbers are very important and should play a large role in our decisions on whether to purchase or not, there are other factors that many of us do not consider before buying for the long run.
In this post I am going to cover 4 Points that should be considered before buying and holding for a long term.
Do the State Laws Favor the Tenant or the Landlord?
Let’s be honest here. If we are in the business of owning rental properties, it is just a matter of time before there is a legal issue that arises with a tenant.
If you are currently in a state that favors the tenant, you will need to be much more careful when operating your rentals. Make sure that you have a pretty solid understanding of the tenant/landlord laws and protect yourself as best as possible.
Having a great real estate attorney on your team that specializes in this area is highly recommended.
If geographic location is not important to you, you may want to look at investing in landlord friendly states to help you sustain a great return on investment.
Before you buy and hold it is important to look at affordability because it plays a large role on the profitability and the marketability of our investments.
To calculate what an affordable rent would be for a given area take 30% of the median income for that area. You can find median income numbers by looking at the US Census Bureau for the area you want to invest in.
There are many other websites that have this data as well. Just Google “Median Income” followed by the city name.
When looking at a market that you want to buy and hold in it is very important that employment is growing. If there is strong job growth, that city will also be experiencing a population growth as well, attracting many out of area people. This will also help with property appreciation.
Studies have shown that markets with the highest rental rate growth & occupancy are also the areas that have generated above-average employment growth.
The diversity of employment opportunities is very important as well. If a city’s employment is largely based on one major employer/industry it could be risky to invest there. If that one company or industry takes a plunge you will also take a hit.
Take a good look at the current developments that are currently being built in the city.
Are there new transportation developments? Any new shopping centers underway? What kind of major housing projects are being built?
Check with the city’s building and planning department to see if they can give you any insight on major developments in progress and also plans for the near future.
This will give you insight on what direction the market may be heading.
In a perfect investing world, all four of these points would look great before we pulled the trigger to buy and hold an investment property for the long run.
It is important to point out that these points are to help you make an informed decision and not set in stone rules that you must follow before investing.
There are upsides and downsides to every investment property and market. As investors, it is our duty to properly analyze each investment weighing the pros and cons, and then making an informed decision.
Use these four points as a guide to further help reduce your risk when choosing a market to buy and hold in.
I hope that this post was very helpful to you. If it was, please share with someone who you think may benefit from it.
Here’s to your success!!!
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