Real estate is a long game. Like any market, it is impacted by supply and demand and the state of the economy. As an investment, it doesn't offer immediate liquidity, limiting access to cash. There are substantial costs to acquiring and selling real estate holdings. Those costs should ideally spread over the years to minimize the negative impact of the rate of return,
Average-priced homes - or even slightly below-average - have the broadest market appeal for renting and when it's time to sell. As with any real estate investment, the average price is always relative to your local market conditions and prices.
Typically, lower-priced homes generate higher rents than those of higher-priced homes. The relationship between rent as a percentage of price is inverse. The higher the property's value, the lower the rent it commands, meaning the percentage of the price is lower. If a $200,000 home rents for $1,750 a month, that's 0.88%. But a $400,000 home may only command $2,250 monthly (0.68%).
Owner-occupied neighborhoods tend to be a stronger investment. When it comes time to sell, predominantly tenant-occupied neighborhoods often appeal to investors - lacking a buyer's emotional investment. Owner-occupied properties can draw in buyers who plan to live in the home and will pay a higher price.
Whether you're looking for a primary home or an investment, the key is to purchase a property with selling it in mind. A functionally obsolete bargain property (limited bathroom or an undesirable floor plan) will still have those issues when it's time to put it on the market. It's vital to step back and consider whether there are solutions to those challenges. A property with those issues may be a strong rental, but you must address those conditions before selling.
Always have a home inspection before purchasing. For a few hundred dollars, you may avoid thousands of dollars in unanticipated expenses. Considering a home warranty on a rental or primary home makes sense. The annual premium reduces out-of-pocket costs for many repairs and some maintenance.
Buyers should take the time to understand the risks of a real estate investment and have a clear picture of the ins and outs of property acquisition, its operational requirements, and what is required for disposition. Investing in residential rental property is often a good fit for a typical homeowner because they can relate to the attributes renters seek
The more earnest money that the buyer deposits indicates to the seller a higher level of commitment.
Real estate investment is a long game, but can reap many benefits.
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Mike offers years of proven experience successfully helping clients, buy, sell and invest in Lake Country Real Estate.