Smaller investment properties often offer significant financial/economic benefits, in terms of creating a combination of asset growth, return on investment and a degree of security. However, this is true only if the buyer first fully understands what to look for and why. Different potential properties, have, vary, potential, for optimal performance, etc! While not everyone can consistently take care of, pay for, or get involved in large real estate deals/purchases, many more can take advantage of smaller properties, etc. These vehicles often include one to four families/units, houses, and while some offer attractive investments, others may not always do so. With that in mind, this article will attempt, briefly, to consider, examine, review and discuss, 4 important, significant, main/essential considerations and evaluations.
1. Cash Flow: Cash flow, when it comes down to it, usually refers to the difference between funds/income received and monthly costs. It is important to consider these, conservatively, basing assessments, not on the highest potential rent-rolls, but on market-based rents and, no more than 75% occupancy (to avoid a possible , cash- crushing, if there are interruptions, due to a variety of possibilities/contingencies). In addition, the investor must be careful to ensure that his personal cash flow is not affected by using too high a percentage of his reserves for start-up costs, building reserves, etc.
two. Area/ neighbourhood/ local market: Before you take the plunge, carefully consider and assess local real estate market conditions and discover the rental market in terms of availability, demand, pluses and/or minuses. Get to know the specific area thoroughly and determine, if it offers, the best scenario for you and your priorities and purposes!
3. The 6% rule: Many pay close attention to what is often referred to as the 6% Rule, when it comes to purchasing smaller investment properties. This means that three quarters of a realistic rent-roll must reach at least a six percent profit. Expenses must include: mortgage-related expenses, including principal, interest, taxes, and security deposit; owner – utilities paid; repair; renovations; updates and reservations, etc.
Four. State of the property: Understand the existing condition of the property in question, and what will need to be addressed, immediately, on an intermediate – basis, and in the long term. The reserve funds must be used and prepared for as many contingencies as are foreseeable, etc! On the other hand, do not be too influenced by the staging and overestimation of rental reels.
After more than 15 years as a licensed real estate seller in New York State, I am a firm believer in the possibilities and advantages of investing in smaller investment properties, but only when done with care. , and in a focused way! The smarter you proceed, the better off you will be!