What to Look for in a Real Estate Investment
Investing in rental properties can be an excellent way to diversify your portfolio. But for many first timers it can feel like a daunting task. Where do you buy? How do you recognize a good investment over a bad one? How can you ensure you maximize your returns?
Jarod Machinga was born and raised in the world of real estate. He is an entrepreneur and investor who started his personal real estate journey in college when he realized paying for off-campus housing was unrealistic. Instead, he purchased an investment property and fixed it up himself while renting it out for a profit. Now, Machinga is the owner and operator of JAMAC, which runs his investment properties, as well as JAMAC Construction, JAMAC Electric, and JAMAC Plumbing which handle third party projects.
Success stories like Jarod Machinga’s, don’t have to be rare. In fact, Machinga himself encourages others to take the leap into real estate investment. For him, there are four key factors to consider before purchasing an investment property, and, if you get it right, the returns on your property can work in your favor.
The most obvious factor to consider is the average rent in the area. This will help you determine what you can afford to buy as well as what you can expect in returns. It is important to consider not only your mortgage, but also your expenses, which will include repairs and upgrades, real estate taxes and insurance. If you plan to hire a property management company, consider what that cost will be and how that will affect your returns. If you plan to manage the property yourself, consider commuting costs if the property is not local. The average rent must cover all monthly costs for positive cash flow.
Machinga advises new investors to investigate the tax rates early on. A great resource is the municipality’s office, which will have all the rates on file. But also make sure to talk to other residents in the community to find out if tax hikes are likely in the future. For example, an area experiencing financial hardship will be more likely to increase taxes to offset a deficit.
Neighborhood and Amenities
Check out the neighborhood you are interested in buying in. How is the school system? How close are restaurants, parks, community centers and other amenities? Are they in good shape? These things will determine the type of tenant you will attract. If the neighborhood is close to a university for example, you may be facing summer vacancies. If it is close to good grade schools, you may be looking at attracting families. Other considerations in the neighborhood are crime rates and police presence. Machinga recommends speaking to local law enforcement for statistics and other residents for their outlook.
Lots of construction in the area can be a good sign. New shops and businesses in the area could mean job growth, which also means attracting more tenants. If the area is up and coming, there may be areas already zoned for new housing, which can be a good thing as well, but may also compete with your property. The municipality will have information on what areas have already been zoned for various purposes. Machinga urges new investors to have a good idea about the plans for the area so they can factor changes into their reasoning and calculations.
Jarod Machinga is a true believer in the potential of investing in real estate. As an expert in the business, he believes these four key factors will steer any new investor in the right direction and get them thinking like a seasoned professional.