Thinking about investing in real estate? There are lots of reasons why you’d want to; tax benefits, good returns, passive income, great retirement strategy, and appreciation. In fact, according to a recent Bankrate study, real estate is now Americans’ favorite long-term investment.

So, what would you look for in an investment property? Several things come to mind, but the first thing I look for is instant equity. If the price isn’t low enough that I can quickly gain equity, then I’m not interested in it.

Another thing you will need to determine is if you have enough money in reserve to maintain the home. For example, once you close escrow, do you have the funds to make any repairs needed to get it ready for a tenant?  Will it have a positive cash flow, or at least provide enough income to cover the payment plus a little extra for future maintenance. Let’s look at that for a moment, if you purchased a property for $400,000 the monthly payment at 3% interest would be approximately $1700/month. That doesn’t take into consideration any taxes or insurance, so you’d need to charge at least $2000 per month just to cover the payment. Again, there’s no reserve built into that rent for future maintenance. On a $300,000 mortgage, the payment would be approximately $1300 per month, so the rent would be more realistic. The numbers must make sense, otherwise, it’s an Alligator; it will just eat and eat and eat all your money.

You want a low-maintenance property, preferably with newer HVAC equipment and roofing. Those are a couple of the biggest maintenance costs. Basically, aesthetics such as paint, flooring, etc. aren’t costly in the long run, but things like the HVAC system, the roof, plumbing, etc. are major sources of food for that alligator.

Location is an extremely important factor, they don’t say “location, location, location” for nothing. If your potential investment isn’t in the right location, you could have trouble with appreciation or selling it for a profit later on down the line.

In summary, be sure your numbers make sense and that the property you are looking at will work for what your goals are for investing. If the numbers don’t make sense, walk away. No sense in feeding that alligator. These are just a few of the things to take into consideration when looking at real estate investing. If you want to know more, talk to your favorite Realtor and see what advice they have and what is available in your area. Happy investing!

J J Ballard