From the first decision to invest in real estate to actually buying your first rental property, there is a lot of work to be done. This task may be daunting for the first-time investor. Owning property is a tough business and the field is peppered with land mines that can obliterate your returns. Here we’ll take a look at some things you should consider when shopping for an income property.
1: Does It meets your objectives
Making decisions based on your real estate investing objectives is the foundation of our strategy, so it makes sense that our number one is that the property meets your objectives.
For example, if your objective is to make N200,000 per month in positive cashflow you need to go out and find a property that will produce the money! Usually, it’s easier to obtain positive cashflow from a multi-unit property. It could be a house with a basement suite (2 tenants – 2 rents), a duplex, a tri-plex, or a small apartment building with 4 or more units. One of the easiest and quickest ways to determine if it will cashflow is using the Gross Rent Multiplier or GRM.
To Calculate the GRM
Asking/Purchase price = N150,000
Monthly rent = N1,100
N150,000,000/(N1,100 x 12) = 11.36 (GRM).
Speaking generally, a property with a GRM of approximately 10 or less will likely produce neutral or possibly positive cashflow. And this is just a “quick and dirty” way to determine if a property will cashflow
2: is the property in a Growing market
Ok – so the property meets your objective. The next thing to check is that the market is growing. We’ve talked about this a bit before, but searching the local papers for news about new jobs entering the market (either a new company moving in, lots of new construction or corporate expansions), learning of new plans for infrastructure (public transit lines or major roadways being added) as well as getting some sense of population shifts are all good things to do to make sure you’re investing in a growing market.
Check municipal and city information along with provincial or state and look for census information including population, household income, number of children, number of schools, number of households, average person per household, etc. The information you really want to see is the direction these numbers are trending in. Is the area growing or shrinking or fairly stable? If the trending shows it’s growing, you’ve likely found another
3: The area is improving or recently improved
Your objectives will be very relevant to whether you find a good area or one in transition. If you want a no mess, no fuss type of property you are likely looking for an established area. But if you want to chase some potential appreciation or can’t afford the established areas yet, you might be looking for a neighbourhood that is still having some “growing pains”.
No matter what your objective, we wouldn’t advise buying in the crappy area if it has no signs of hope. Bad areas attract difficult tenants and your property will likely go down in value and be impossible to sell later on. Instead, seek an area that is improving In these new Starbucks locations, you will often see plenty of signs of improvement… people renovating homes, cleaning up yards, government investment in roads and parks and developers buying land are just a few.
Another word of caution, just because the area appears to be improving, does not guarantee that you will make money buying a property there. However, if you’ve done your research on the economy, vacancy rates, population changes and negotiate well, you will likely have a profitable property.
4: You find a professional Property Manager that is willing to manage your prospective building
Owning an investment property means you HAVE to have a property manager. properties where we have professional property management in place are less stressful and much less time consuming for us. A good property manager will cost you around 10% of your gross rent and even up to 1 full month’s rent to place a tenant in your property, but unless you want to buy yourself a part time job when you buy your property, a good property manager is worth every penny.
The key to this is to locate a property manager BEFORE you buy the investment property. Even if you decide you want to save some cash and just manage it yourself, it would be wise to speak with a few PM’s to find out if they would manage your property, determine what their fees are, and what their fees pay for! Why do you look for a PM even if you are going to manage it yourself? Well, if down the road you accumulate too many to manage or you can’t take the stress of managing it anymore or you start to enjoy your time down in Mexico for 2 months per year and don’t want to have to always answer your tenants phone calls… you will want to know that you can hire a reputable property manager to take over for you!
We at Primwest Properties are always willing to manage your properties and make money for you at no extra cost, contact us today, CLICK HERE TO CONTACT US