Consider Location Before Making a Real Estate Investment

For investors seeking an investment income stream from rental properties, one of the most important aspects to consider is the real estate’s location.

Albeit real estate has become a popular investment in the last 50 years, buying a property and renting it out to a tenant is an investment is as old as land ownership itself. The owner, more commonly known as the landlord, is responsible for paying the mortgage, taxes and maintenance of the property. Ideally, the landlord charges enough rent to cover all of these costs.

In some instances a landlord may charge more than the mortgage, taxes, and maintenance, in order to produce a monthly profit. More commonly though, a landlord will be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. As well, the real estate may have appreciated in value over the course of the mortgage, leaving the property owner with a much more valuable asset.

For investors seeking an investment income stream from rental properties, one of the most important aspects to consider is location. The quality of the real estate’s location will influence the type of renters attracted to a rental property. To judge a property’s appeal, carefully consider the Walk Score. This measurement will provide immediate insight into proximity to transportation, hospitals, universities and colleges, major business centers, local restaurants, and shopping. The more central the location, the greater the demand.

Many successful rentals are located in close proximity to major schools. For example, if you buy a property near a state university, students are likely to want to rent it year after year.

Aside from choosing a bad location, there are some potential hazards to investing in rental real estate. You can end up with a bad tenant who damages the property or, worse still, end up having no tenant at all. Both of these will leave you with a negative monthly cash flow. Under these circumstances you (the landlord) are responsible for covering the mortgage, etc, payments.

The easiest and possibly best real estate investment for beginners are residential single family homes and condominiums. Condominiums are a favorite because they are low maintenance. Generally speaking the “condo corporation” is responsible for external maintenance and repairs. You must keep an eye out for high maintenance fees which are generally charged on a cost per square foot, per month basis.

Like investing in gold and shipping container investments, real estate is a tangible asset that can play an important role in hedging against the risks of the stock market. When diversifying a portfolio, investors would be wise include one or all of these to protect themselves against the poor performance of traditional investments, like stocks and bonds.