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Buying An Investment Property: How To Tell A Deal From A Dud

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When you're looking for a real estate property to buy as an investment, there are certain things you need to look for. Whether you're looking to rent the property out or to flip the property and resell it, you don't want to end up with a money pit or with something that doesn't end up bringing you a great return. Here are some ways that you can tell if the property you're looking to buy will be worth it.

1. Location.

Location really is everything. The houses themselves will come and go, but the land on which they sit has inherent value that will trend up in a good area or trend down in bad one. Here are some aspects of location to consider before you buy:

  • Is the property close to shops, nightlife, or local sources of employment? If not, check the subway and bus routes and make sure that the property at least is accessible to great public transport. When you flip the house or choose renters, the proximity of these amenities will help you justify asking for a higher payment.
  • Might the property work well for students? Sometimes, buses and shops might be further away, but the grade schools and university might be just a five minute walk away. For families, the proximity to school can be a big selling point, and for college students, having class in walking distance is worth paying extra in rent.
  • Are there natural amenities that cannot be enjoyed other places in the neighborhood? Things like views, city parks, and lakes or streams add value to a location.

2. Property Taxes 

You might be able to get a great deal on a house in a good neighborhood, but then you find out the property taxes are several thousand dollars a year. This might not be a problem if the neighborhood has a competitive rental market or has a super desirable location, but if you have high taxes in an area where rental units are common and houses frequently go up for sale, you'll have to find a way to swallow the high tax costs, leading to higher rates for tenants for a living space that might not be as good. When flipping a house, higher taxes are a deterrent when you're trying to sell.

3. Home Owner's Associations

Some people like the fact that the HOA will always take care of landscaping and help to regulate sound, eye-sores, and paint colors within the community. But, these limits are known as "deed-restrictions", and they can be a thorn in your side as you strive to flip the house or find renters, as well as maintain the property to the standards the HOA can set. Monthly rates can be almost as high as the mortgage itself, depending on the community, and when people are shopping for homes to buy or rent to pay, they might not have factored further monthly HOA fees into their budget, which sets the house out of their price range. As an investor, you don't want to be burdened with HOA costs. Be sure to check the rates and fees common in your area before deciding on buying an investment property with an homeowner's association. 

4. Potential Jobs

When looking for a property buy, look in areas that are partially developed instead of fully established. Try to buy in areas where a new business is being built-- people who will end up working for those businesses will need a place to rent. When factories, shopping malls, or even large department stores are being built, it's time to snatch up the cheaper properties before their value goes up. 

For more advice on buying a real estate investment, talk to a real estate lawyer or agent from a company like in your area.