Investors face one crucial consideration when choosing a property, and that is the amount of risk associated with the property. A risk-free investment would be ideal, but unfortunately we don’t live in a perfect world. It’s impossible to eliminate risk, so when you’re looking at an investment, you need to look at reducing the risk as much as possible. In order to do this, you must ask three key questions.
1. Is it a good investment?
Certain types of investments carry more risk than others. Tenant-in-common investments, “fixer upper” properties and investing in land to develop properties on are more risky than buying an property that already has an established cash flow. You must carefully analyze and test the market and the properties to make a purchase that carries little risk.
In addition, properties that are going to take much of your time to manage rarely make good investments. For instance, vacation rentals, in which multiple “renters” come and go, or college rentals tend to have a high turnover and high maintenance costs.
Instead, look for nice properties that are in good shape that you can wholly own to serve as investments. Finding properties like this takes the know-how of an investment friendly realtor and a lot of research of your own, so take the time to make the best possible real estate investments.
2. Do I know the market?
If you are investing in the Houston real estate market, you need to know it. Know the city’s areas, price trends and average home price. This will help you know whether or not a property is bargain priced. Investor friendly agent Bill Edge can help you navigate the real estate investment market.
How can you tell if an area is starting to see growth? Look at the infrastructure. If new shopping developments, roads and schools are going up, then you can expect growth. Purchasing investments in areas that are about to see growth can create an excellent income.
New developments are also a less risky investment, if you can find them before they start selling out. If you see surveyors and land being cleared, chances are something new is going up. If the area is zoned for residential, you may want to start thinking about investing. Renters, like buyers, like newly built homes.
3. Do I know the costs of operation?
Never buy an investment property without counting the cost. Common costs to consider include:
- Insurance – You will need to insure the property, and the cost can vary depending on many aspects of the home. When inquiring about insurance, inquire about flood insurance if it is needed in that area.
- Property taxes – If you are considering properties in neighboring towns, look at the community with the lower property taxes. If taxes are equal, consider one that rarely raises taxes.
- Home owners association fees – If the property is in an area with an HOA, you will want to consider those costs. Often you can recoup them by increasing the rent in light of the added amenities the community offers such as an area pool, jogging paths, tennis courts, children’s playground, dog park, and community centers.
- Maintenance – You can’t know the exact amount maintenance will cost, but you should plan to spend about 1 to 3 percent of the property value each year to maintain the property.
- Tax consequences – Talk to a tax professional to learn what tax consequences you will face holding investment property.
Thoroughly investigating the property you are investing in and the Houston real estate market is the most important way to lower the risk you have when investing in properties. Investor friendly agent Bill Edge is ready to help. Call us today at 713-240-2949 to learn more about maximizing your Houston real estate investments by minimizing risk.