8 Tips for Buying an Investment Property - Erica Diaz Team (2024)

Owning rental property is an excellent way to generate passive income. While investing in real estate can be a fun, exciting, and a profitable adventure, it’s NOT always an easy investment strategy. Are you new to real estate investing? Maybe you’re interested in building your investment portfolio? Consider these 8 tips in buying a successful investment property.

Things to Consider When Buying an Investment Property

Identify Your Target Renter

A little research can go a long way when determining the general demographics of the renters in your area. The information you will want to determine includes things like:

• Are renters in your area typically families with young kids? Retirees? Business professionals?
• What is the average household income?
• What amenities do they value?

Once you identify your ideal renter, you will be able to narrow your property search down to a home that suits that type of renter. If you buy a home that would generally attract growing families, but live in an area that is popular with students, you may not maximize the value of the house. Knowing your target renter is key to purchasing the most profitable investment property in specific areas.

Buy at the Right Price

After you identify your ideal renter, you can begin your property search. It is important to remember that the goal is to stay cash flow positive. You want to find a home that will start making money immediately. This means purchasing a property that doesn’t have to have a lot of work (money) put into it to get started. Don’t be tempted to buy a more expensive home, if it means you will be struggling to pay for regular maintenance or any of the other things that come with being a landlord, it’s better to start small.

Compare apples to apples, or in this case, investment properties to investment properties. Compare your property with other comparable properties for sale and rent in the area. This is the perfect time to connect with a local realtor (if you’re looking in the Central Florida area contact us, the Erica Diaz Team) who can perform a comparable market analysis on properties in the area for you. A real estate agent’s deep understanding of the local market and the value of homes can help you make a smart and profitable decision.

Find the Right Community

As you dive into your rental property search, it’s important to remember the neighborhood your home is in, gives your rental the best chance at success. Keep in mind ultra-luxury communities might not be the right target area for renters. These aren’t very rental property friendly and there are typically restrictions against rentals in these neighborhoods. However, areas near highly desirable schools and have community amenities such as pools, clubhouses and fitness centers are great options.

It is incredibly important to review the rules in regards to rental properties for any community you are considering purchasing a home in. Many HOAs have restrictions on rental properties. There would be nothing worse than to purchase a home with intentions of using it as a rental property, then finding out it is agains the rules to rent it.

Look for Simple Construction

From a maintenance standpoint, it’s smart for property investors, especially first-timers, to look for simple construction. While elaborate Victorian and Colonial style homes are beautiful, landlords can often run into trouble finding materials for a specific type of property. Experienced investors suggest looking for simple homes that use standard materials, and following the “corner” rules. Four corner homes are often easiest and most cost-effective to manage, typically the more corners the house has, the more work it is to maintain.

Also, consider the landscaping. Complicated or intricate landscaping may require more work than you and your tenants are willing to put into it. A simple home, with standard materials, on a basic lot, is an excellent start for first-time investors.

Bigger is NotAlways Better

Bigger is NOT always better, especially when it comes to buying a rental property. Other than influencing your tax bracket and property value, the size of a lot that the house sits on won’t do much for you when it comes to rental income. Don’t be tricked into thinking you need a large home on a large lot to attract highly-qualified renters. Same goes for the size of the rooms. Bigger bedrooms usually don’t correlate with higher rent prices. Renters are mainly looking for the number of rooms, not necessarily how big they are.

This goes back to knowing who your target renter is. If you understand the demographics of the renters in the area, then you will know what size of home is best.

Look for Rent-Ready Properties

Once you have decided to enter the real estate investment world, you will want to look for a property that is rent ready. Unless you have extensive experience with rehabbing houses, your first investment property isn’t the time to get started. Keep in mind, the whole idea behind buying a rental property is to start making money as soon as possible. If you are pouring money into extensive renovations, you are delaying the positive cash flow process. Look for homes that need very little maintenance or renovations and that are ready for renters as soon as possible.

It’s also a great idea purchase a home that is currently being used as a rental property. Many times there will already be tenants living in the home who want to continue living in the home. This checks off the finding renters box from the moment you purchase the home.

Screen Tenants and Run Background Checks

Finding the right property is only half of the battle, finding the right tenants is an adventure all on its own. Every landlord hopes to find the ideal tenant, the family that treats the home as if it were their own, pays rent on time and has minimal problems or complaints. However, finding these dream renters does not happen on accident. Landlords spend a significant amount of time and money screening tenants, running background checks, checking references, and advertising their property for rent. This is not a step that any landlord should skip. Although it can be time-consuming, it is critical in finding tenants that will respect your property and uphold their responsibility to pay on time.

Again, if you are able to purchase a home that already has quality tenants occupying it, that would be ideal. However, as long as you do your due diligence before allowing someone to move in, you’ll be able to find someone fairly quickly.

Hire a Property Management Company

Many landlords are simply too busy to handle all of the behind-the-scenes responsibilities that come from owning a rental property. This is why they hire a professional property management company to do it for them. The Erica Diaz team offers a comprehensive property management service for landlords in Winter Garden, Clermont, Windermere, and other surrounding areas. Landlords can rest assured that their property is being well maintained and any tenant issues are being resolved quickly. If you are looking to reap the rewards of owning a rental property but don’t want to do all the legwork associated with it, property management is a smart move.