Attributes of a Great Buy and Hold Real Estate Investment
Working with real estate investors for the past 17 years I have seen a disturbing disconnect with investors as it relates to buying investment property. Within real estate the common knowledge is that real estate is all about location. Indeed location is paramount in real estate, but don’t stop there. Most all the talk you hear about real estate is in reference to the typical person buying a HOME for personal use.
Real estate investment property has many more attributes that need consideration and these attributes are rarely talked about, causing most to totally overlook these important considerations which may impact the potential of your investment.
Investment property attributes
Let’s take a look at these different attributes to be considered and what they mean to you the investor.
This one you already know, but do you? Location indeed means something different to the investor than what you, as a homeowner, will look for. As an investor, finding the best Location will have more considerations to insure you have a great investment. Indeed you should have the same consideration as what a homebuyer would look for.
Things like being by good schools, close to shopping and entertainment and to places of employment.
As an investor this is important as well because when it is time to sell you will want to appease the homebuyer that will pay retail prices. (this should be a considerations as part of your exit strategy).
For an investor best location runs very parallel to the SUSTAINABLE. Sustainability is a word that is as important to real estate as Location itself. Great investments must have the ability to be a sustainable investment over time.
How to find a sustainable investment
Best investing markets:
You can find a best location to buy a home in any city U.S.A., but in many of these cities these best locations will not provide cash flow as the pricing will not allow for positive cash flow.
Finding a market with sound economics that will continue to be strong and growing is paramount. Markets with growing populations, Job growth, and job diversity will insure you have the ability to find tenants that will have jobs available to them and keep paying you rent.
The countrywide standard is that housing costs should not exceed 3 times your income. So when you look at a market's median income, it should be able to buy a home for 3 times median salary. Exp: median income is $50,000 x 3 = $150,000.
In this example this represents an affordable market and undervalued market means you can buy a home for less than 3 times salary. When you find these undervalued markets that also have the above attributes of best investing markets, you can have Sustainability.
Path of progress:
This one is icing on the cake. When you buy property with these above attributes and you buy them within the cities direction of growth, you further your ability to increase your equity growth.
These economically strong and growing areas tend to grow in one corner of the city. This path of progress is attractive to homebuyers and renters and will tend to appreciate in value more quickly and stronger.
When you invest in buy and hold real estate you want to do more than just evaluate the property today.
If you hold it, you want to research what the holding potential will look like. If you invest in a property that looks good on paper today but lacks these above attributes, you are very probably investing in a market that is reaching its peak and may soon be switching into a seller’s market.
Many people do this every day because they just evaluate a property in a good location that looks good on paper with no regards to what that investment may look like next year and beyond.
I always say you should never evaluate a property until you evaluate the sustainability of the market.