What type of homes does an investor look for? One of the keys to good investing is having a diverse portfolio. That diversity includes different currencies, rare metals, art, and of course, real estate. Real estate is one of the best investments you can make. While it’s true that housing markets go through a never ending cycle of boom and bust, real estate is a versatile type of investment, with a few ways to put properties to use that other investments don’t have.
One of the main things that real estate investors look for in a home is the location. A cheap mansion will still sell poorly if it’s in the worst part of town. Granted, location can take a back seat to “reantability” in some cases, which we’ll discuss later on.
Investors look for homes that have good locations. Usually, they are located in subdivisions or housing zones that are close to schools, universities, hospitals, and upscale shopping centers. Most nice locations are areas that have low crime rates and also have some employment close by. On the bad end of locations, investors tend to shy away from houses located in impoverished and high crime areas. Likewise, most investors will stay away from buying houses in towns and cities with high unemployment. If there aren’t any jobs in a city, it can be reasoned that nobody will be moving there for employment. Additionally, properties that are close to facilities like airports, chemical plants, railroads, and other places that can be unpleasant to live near are huge turn offs for an investor. Essentially, local economies, crime rates, and facilities will be what factors into the viability of location for an investor.
The next thing that factors in after location is the amount of work a home will need to get back on the market. In other words, turn around time. If the home needs major emergency repairs or is in ruins, then obviously the home probably won’t be profitable. If the home was just poorly marketed and sold at a loss by the previous owner, then some cheap cosmetic changes are all that needed. Issues like water damage, asbestos, mold, and radon are also deal killers. The amount of work that the investor can do on their own also plays a factor. Another location factor is if the type of home is still viable on the market of that area. While single family homes tend to be popular, in some cases duplexes or condominiums may be more favored as rental property. In fact, the area the property is in may be dominated by a rental market if the turn over rate for certain job fields is high in the area.
Another factor is if the property can be rented or has the potential to be rented. This is actually a big factor as some properties that might be less than marketable to a home buyer can make for great student housing or rental property for temporary workers. Even if the location isn’t perfect, many renters will put up with train tracks in their backyard or air traffic landing and taking off all day if they only plan on staying there for a year or two. There is plenty of potential to make far more money renting than selling the property in many cases. However, some jurisdictions have zoning rules and regulations on rental properties, meaning that an investor may be limited in how they can rent the property in some locations.
Pricing is another factor in how investors chose homes. If the price is extremely low, they can afford to make the necessary fixes and repairs needed to sell the house quickly. If the price is too high, they may not be able to make much, if any profit from the home. Even if the property is highly rentable, a high price tag will mean that the investor will have to wait longer to earn a return on what they paid. Even at a low price, extensive repairs and renovations will make the house unprofitable at best, and a loss at worst.