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So, What Makes a Good Investment Property Anyway?

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They say that beauty is in the eye of the beholder, but this philosophy does not apply to buying an investment property!  In fact, the factors that make an attractive investment property are very similar irrespective of the specific local market.    

Obviously the most important factor is the numbers.  In other words, you must make sure that the price of the property is reasonable, and that the rent will cover all of your property costs like the mortgage, real property taxes, landlord insurance, water & sewer, etc.  Be conservative and inflate your costs by 10% to accommodate any unforeseen circumstances.  If a property is not at least breaking even every month on its own, walk away.

Related to the property’s cash flow is the number of units in the property.  Generally, I recommend 2-4 unit multifamily properties, because these offer multiple rental income streams yet can still be purchased at affordable prices.  Plus, if one of the units is vacant, at least you will have income coming in from the other units until the vacancy is filled.  Conversely, with a single family home, you will have zero income coming in during periods of vacancy.

The third key factor is the quality of the neighborhood within which the property is located.  I recommend a lower-middle class neighborhood, as areas in this category generally offer reasonable property prices as well as large pools of potential tenants.  However, stay away from extremely low-income or ghetto areas because the quality of tenants will be poor.  I actually made this mistake when I purchased my first property – a triplex in the “hood.”  Between deadbeat tenants and the crime in the area, it was a complete nightmare.  I sold it after 1 year and vowed never to buy a property in such an area ever again.

In the final analysis, there are 3 key factors that make a solid investment property: a reasonably-priced property that has a positive cash flow, a property with 2-4 units, and a property located in a middle or lower-middle class neighborhood.  If you can find a rental property that meets all three requirements, you should be golden.

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