The first thing anyone in the investment property profession learns is that there is simply no substitute for an excellent location. Location will determine everything from how much rental income a property can likely bring back to the owner to the appreciation rate a buyer can expect in the years ahead. If an investment property is a commercial property, the buyer is going to want to ensure that the location is attractive to potential business renters. With residential property investment, it will be vital to consider how likely the location is to attract families. This is why investors will look at factors like the crime rate, school ratings in the area, and the amenities and activities nearby.
Downtown Nixa Mark Anderson suggests an investment property he suggests will provide a positive cash flow for his clients straight away. Obviously, positive cash flow can only happen when the incoming funds outweigh the outgoing cash spent on managing and investing in the property. How investors are able to make an accurate prediction on the cash flow of an investment property is through conducting a market analysis. In a market analysis all possible expenses are accounted for and weighed against what similar properties in the area are bringing back via their monthly rent intake.
Two terms that those interested in investment property should be accustomed to are capitalization rate and cash on cash return. The cap rate is the net operating income divided by the current market value. The cash-on-cash return is the annual net operating income divided by the total cash invested. In terms of cap rate, investors should be seeking something above 10 percent in order to be profitable. Everyone has different investment goals, but many shoot for properties that can yield an ROI of 20 percent or above.
The last topic Mike Shouhed touches on in this general overview is the importance of learning how to properly identify areas that are likely to see their properties appreciate in value. Savvy investors aren’t just looking at the present, they are tasked with looking into the future. Investors should be looking for properties built in locations where infrastructure development projects are in the works. Areas that are being targeted by the local government for new business hubs can often appreciate rather rapidly for investors.
