Smaller investment properties often offer significant financial/economic benefits, in terms of creating a combination of asset growth, return on investment, and some 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 care for, pay for, or be 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, homes, and while some offer attractive investments, others may not always. With that in mind, this article will attempt to briefly consider, examine, review and discuss 4 important, significant, main/essential considerations and assessments.
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 potential, effective – 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, as well as to build reserves, etc.
two. Area/neighborhood/local market: Before you jump in, carefully consider and evaluate local real estate market conditions and find out about the rental market in terms of availability, demand, pros and/or cons. 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 known as the 6% Rule, when it comes to buying smaller investment properties. This means that three-quarters of a realistic rent-roll must achieve at least a six percent profit. Expenses must include: Mortgage-related expenses, including principal, interest, taxes, and escrow; owner – utilities paid; repair; renovations; updates and reservations, etc.
Four. Property Status: Understand the existing condition of the property in question, and what will need to be addressed, immediately, on an interim – basis, and long-term. 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 the overestimation of the rental rolls.
After more than 15 years as a licensed real estate seller in New York State, I am a firm believer in the possibilities and benefits 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’ll be!