Our clients frequently ask us about investing in real estate and what makes a good investment property. We have many clients who make real estate a large part of their investment portfolio, and we do, too!
We are finding that due to market conditions in our area, most successful real estate investments these days are in the rental market, not in house flipping. Property values are high, so recently, flippers haven’t had as much success competing with regular homeowners (who intend to occupy properties) for the best deals. We have had clients have a lot of success with the “buy and hold” investment strategy. And this is just what it sounds like- investors buy properties and hold on to them as rentals.
So what should potential investors look for in an investment property? And what makes a good rental?
1. Rental properties should be as turnkey as possible and newer is usually better.
Costs of upgrades and remodels are at an all time high and availability of contractors is at an all time low. Buying a rental that needs a lot of work equals a headache for the new owner and will likely reduce the investor’s return on their investment.
2. The more bathrooms the better.
Every renter wants their own bathroom. The ideal rental has the same number of bathrooms as it does bedrooms so renters that aren’t related can have their own space.
A rental in which each tenant has their own bathroom space will rent quicker and will be more attractive to potential tenants each time it needs to be re-rented.
3. Owning a rental in close proximity to where you live is ideal.
There will always be some work associated with owning rentals. Owners will need to show the home to potential tenants, stop in periodically to make sure the home is in good condition, and if an emergency happens. Investors will be more likely to hold onto the rental if it’s in close proximity to where they live. And holding is the name of the game!
4. The yard should be simple and require minimal maintenance.
Most renters these days seem to be uninterested in taking care of a yard or paying for a lawn service. Most would like to minimize obligations with regard to yard upkeep. Having a rental with a simple, no-fuss yard is ideal and will be an attraction to potential tenants.
5. Buy in the next “hot area”.
Buying on the fringe of a developing area will increase an investor’s return on investment. Since much of the return on investment will be in the property’s value appreciation, buying in the next hot area will help investors take advantage of upcoming development. Investors should think about amenities like RTD and lightrail, downtown re-developments, and infrastructure improvements.
The Boulder and Denver metros are making their way into a different kind of market than we have seen in recent years and some of the investment rules and opportunities change when the market shifts. If you’d like to know more, we are always happy to have a phone call to talk about what we are seeing in the investment market.
As always, don’t hesitate to reach out with questions. Until next time!
Allison and Ken