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Choosing the Right Property: Look Ahead

Followers of Jason Hartman’s guides to building a retirement cash flow know that investing in rental property is one of the best ways to create a stable income stream. But not all rental properties are equal. When you’re searching for a property to launch your investing career, it’s important to consider not just the property’s current state but also its potential for generating a larger return in the future.

In a depressed real estate markets, there are many kind of properties to choose from. Single-family homes, duplexes and multiplexes, and condominiums are some of the options available, often at very low prices with a fixed mortgage. When you’re selecting a property it’s important to consider not just the property’s current condition but also its potential to appreciate in value. Some factors to consider:

Upgrade Potential

Some low-priced properties, especially those in foreclosure or ones that have been vacant for a long while, can look unappealing. But if you’re willing to weigh the costs of repairs and renovation against the potential for a higher rental income down the line, buying such a property at a reduced rate can yield a high return.

Rental property investors may need to take the long view, though, and look years into the future to evaluate the property’s ability to attract stable tenants and yield an income that justifies the expenses of repairs and upgrades.

Location Potential

Location, location, location: it’s axiomatic in the world of real estate. But when you’re evaluating a potential investment property for its future value, it’s important to consider what might happen to that location months or years from now. Are there any proposed building projects in the vicinity? Perhaps a new school or mall is headed to the area, or renovation of a vacant eyesore is scheduled in the next five years. These possibilities make it likely that you’ll be able to realize more income from the property in the future than you will right now.

Tenant Potential

Consider the pool of available tenants for the property in its current location and condition, compared to the ones you’d like to attract for maximum income. Is the location likely to change enough to encourage those kinds of renters to move in? Will you be able to make improvements and upgrades to the property to bring in those tenants?

The gap between a property’s current and potential future states can be significant. For most individual investors, property ownership is a long-term commitment. So when you’re considering a purchase, take time to gaze into the crystal ball, weighing factors such as the property’s current condition, location and potential for attracting good tenants against its potential for a larger future return. (Top image: Flickr | gerlos)

The Heroic Investing Team


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