An investment property is any type of property purchased with the intent of making a profit. Buying investment properties can be very profitable, but there are several factors you should consider before making any type of investment purchase.

Investment Strategies

Since investment properties aren’t all the same, it’s important to determine your investment strategy before you start shopping around. The two most common investment strategies are renovating and buying and keeping.

When you buy and keep an investment property, you simply purchase the property and rent or lease it out to another party. Becoming a landlord allows you to make a profit while you pay off your financial lenders. You can also use a buy and keep property as a long-term investment by renting it out for a short time and then selling it when the property values rise.

The renovating strategy means that you buy a property with the intent of restoring it and reselling it as quickly as possible. The renovating investment strategy typically allows for a faster profit, but you usually won’t make as much of an overall profit as you would with the buy and keep strategy.

The Investment Property Search

Once you decide which investment strategy you will use, you need to search for a property that will give you a nice profit. It’s a good idea to list the criteria an investment property needs to meet in order for you to be interested in buying it.

Do you want to look at single-family dwellings, small apartment buildings or condominiums? Are you more interested in commercial properties than residential? Taking the time to define your search ahead of time will help you stay focused and shorten the length of your property search.

Find the right location. Look for properties in established neighbourhoods. Rental properties in highly populated and high-rent areas are ideal because you have a large pool of potential renters. Avoid buying investment properties in rural areas with low populations because you’ll have a more difficult time renting it out.

Buying a good property in a bad neighbourhood will be hard to rent and expensive to insure, but buying a bad property in a good neighbourhood and renovating it can make you a profit when you rent or resell it. Search for properties in up-and-coming areas if you’re looking for a long-term investment. Ideally, you want to choose an investment property located within an easy drive of your work or residence so that you can keep a close eye on your investment.

Research the property values and rents. You want to look for properties that have been undervalued so you can get a great deal. Before buying a property, talk to other landlords in the neighbourhood and find out how much they charge and what kind of renters the area attracts. Have your real estate agent find out the financial history of any potential property you’re seriously thinking about buying. You’ll want to know the previous selling price and about any renting history.

Investment Property Financing Options

Finding the right kind of financing is a very important step when buying investment properties. You want to choose a loan that will allow you to maximise your profits. Common financing options include equity loans, standard loans and lines of credit.

Standard loans are the most popular type of financing in Australia. A standard loan has a variable rate, which means that if the interest rates fall, then so do your monthly payments. However, your monthly payments will increase if the interest rates rise.

Equity loans allow you to use the equity in your investment property to finance renovations. You typically need to have a large deposit to get this type of financing. A line of credit means that you are approved to borrow a certain amount of funding. Lines of credit are similar to loans, but you only have to pay interest on the portion of the credit that you actually use.

In summary, you can maximise your investment property profits by identifying your investment strategy, finding the right location and selecting a financial option that suits your particular needs. With careful planning and research, you can be well on your way to becoming a successful investment property owner.

They tell you that the 3 rules of real estate are location, location, location, but ask 5 people what they think is the best location for a real estate investor and you’ll get 5 different answers, and here they are; 5 tactics that you can use to identify great rental locations:

1. Stable City Rentals
   If you’re interested in investing in rental properties, you may want to consider inner city and urban areas for a couple different reasons. It’s true that the rent you charge here will be a little lower than elsewhere, but on the upside, it’s very easy to find renters for these properties, so they’re always going to be earning, where high priced apartments may be empty more often than not. Secondly, the value of these places tends to remain stable, so there’s little fear of a market crash or plummet with urban apartments.

   The middle ground tends to remain fairly stable, too, and at a generally higher price. Most people cannot afford a home in the hills, but they may be able to afford the next best thing. In any event, affordable housing in the city is easy to rent out and tends to remain stable.

2. Coastal Property and Homes in the Hills
   4 out of 5 Australians live within 50 kilometres of the coast. What that should tell you is that, while coastal properties may be a little more expensive, they’re always in demand. Homes in the hills are also high in demand. The location and price on these homes means that you may do well to find a buyer, but the stress of finding tenants to rent to on a monthly basis may be a bit much.

   There will always peaks and valleys in the demand for premium, expensive homes, so you need to be smart and know your market so that you can ride those ups and downs instead of letting them throw you for a loop.

3. Neighbouring Locations
   It’s common for a wealthy family to move to a certain area to be closer to a private school. If you own a home in the neighbourhood they’re looking at, you may well be selling or renting to an affluent family who are willing to pay any price for a home in that spot.

   Other great locations following this rule are those in walking distance to great parks, restaurants and grocery stores. Keep an eye out for areas that are still developing, areas where there may not be anything there just yet, but where, in the future, you’re going to have a house that’s right between an art museum, a grocery store and a great Chinese buffet.

4. Urban Renewal
   Now and then the government will decide that it’s time to tear down an abandoned industrial district and open it up for residential development. In these instances it’s a good idea to jump onto that bandwagon while you can because the area is likely to see an economic boom in the coming months.

   Of course, these projects can be a little more demanding as you may need to build homes from scratch or completely remodel old office buildings and so on, but the opportunity for those who are willing to put in the time, money and effort is tremendous.

5. Old Homes and Fixer Uppers
   Finally, you have old homes, beat up shacks, fixer uppers and run down tenements. These are usually in locations that are perhaps not the best, but that have real potential with one or two nice houses on the block. By improving one or two homes in an area, the property value of that area can improve tremendously.

   This sort of location hunting requires some patience as you’re actually taking a less than perfect location and trying to improve it, but the eventual payoff for your relatively low investment, in addition to knowing that you’re helping a community get back on its feet, add up to a tremendous personal and financial reward.

Real estate continues to be one of the most popular ways for people to invest their money, but many budding real estate entrepreneurs fail to understand basic property investment strategies. This can lead to many costly mistakes when property owners are forced to haphazardly learn the business as they manage their own investment properties.

Fortunately, basic property investment strategies are a lot easier to learn than many people think. By doing their due diligence now, new real estate investors can increase their chances for success by employing the strategies that are most applicable to their individual financial circumstances.

When it comes to property investment strategies, there are two main ways to make money:

• Monthly Cash Flow
• Asset Appreciation

Monthly Cash Flow

When an investment property is purchased, the house or apartment complex can be rented out to others, which earns the property owner monthly income from rent. For those investors who had to borrow money to purchase the property, the rental income can be used to offset the interest expense on the loan. In addition, that regular income can be allocated towards building repairs when things go wrong. If the rental income is high enough, an investor can make a profit on just that income alone, even after accounting for all the expenses of the property.

Asset Appreciation

As well as providing monthly cash flow, the value of the property itself can increase over time, which gives property investors another way to make money. Unlike rental income, which tends to be rather steady over time, assets values can fluctuate wildly during short periods of time. One only needs to look at property markets in Britain and the United States, both of which saw property values plummet after their real estate bubble burst. However, with a long enough time horizon, real estate has the potential to provide significant long-term capital gains.

The two sources of real estate profits coincide with the two types of investors who typically purchase real estate:

• Short-term Investors
• Buy-and-hold Investors

Short-term Investors

Short-term investors are buyers who are looking to sell their properties as quickly as possible. Typically, this type of investing is done on cheap homes that require some form of renovation. The short-term investor will buy the dilapidated property cheaply with low-cost financing, make the necessary repairs and then sell it quickly at a profit. These investors are looking for a quick turnover; their costs increase the longer they hold on to a property, thereby eating into their profits.

Buy-and-hold Investors

Alternatively, buy-and-hold investors look to buy properties that they can hold for long periods of time. Although they appreciate the long-term benefits of holding a property asset, these investors will focus on the monthly rental income the property can provide to defray its expenses. Once the loan is paid in full, the buy-and-hold investor will own the property free and clear. At that point, the investor can continue to benefit from its monthly cash flow, or they can sell the property to collect the equity they have built up in the asset.

Matching Goals with Strategies

At this point, a potential real estate investor has to decide the goals that they wish to achieve with their property. There are many reasons to get into property investment, but different goals require different methods of action. For instance, with respect to people looking for an additional property to supplement their eventual retirement, the buy-and-hold strategy may be the better method since it allows the owner to build up equity in the property over a long period of time; once retirement comes, the property can be sold to raise cash for living expenses.

The Education of a Property Investor

However, many property investors have myriad goals when it comes to their new enterprise. For those people who can’t decide on a specific strategy to pursue, it can be a smart idea to take an investment class or seminar. These gatherings are run by trained professionals who have gained much experience through their years working in the industry; for the beginning property investor, they can ensure that they are set up properly and that their strategies are in line with their goals. By doing this, new investors can avoid many of the pitfalls that ruin unprepared individuals.

Potential investors can also use the power of their computers to help run their real estate business. Several vendors now sell investment programs that will analyse the characteristics of different properties to determine which strategies will lead to the most profit. Not only can such programs be used to manage current properties, they can also be used when making decisions about purchasing new properties.

Real estate investment can be a very lucrative endeavour that can help people achieve their financial goals if they go into it with a plan. Developing such an property investment strategy is not an easy task, but it is essential to those investors who are committed to success.