What makes a Good Investment Property?
My investment series brought up some great questions and new discussion topics, so I thought I’d focus this next blog on a practical example that investors can use as a guide in determining what a good investment property looks like. I took some time and scoured my MLS system (in the greater Evansville, IN area), looking at properties as if I were making an investment for myself. I found a particular listing that is a terrific example of a property that is nearly ready for tenants. I will tackle a “flip” property another time, but for now, let’s focus on an investment that will begin to yield a return on investment in a matter of a few months.
Here is an exterior shot of this all-brick, three bedroom, two bathroom home located in Evansville, Indiana. This home is listed at $79,900, and at 1,508 square feet, the price per square foot is right at $53. The home has been on the market since last August, so as an investor I would offer $65,000 to start and figure finances for a $70,000 mortgage. The estimated monthly payments on this particular home are $565, including insurance and taxes. Based on my research, this home would rent for about $795 monthly, so this looks like a great opportunity.
One additional thought I’d like to share is that the home looks like it could use a little curb appeal assistance. Since this will be used as a rental property, I don’t recommend making any major investments. I would suggest adding some fresh shrubs and flowers and a fresh coat of paint on the shutters and front door. As the owner, you want to show potential tenants that the home is well-cared for and worth the rental rate.
Now let’s move inside.
This home has clearly been maintained and is move-in ready. It has fresh, neutral paint, lovely hardwood floors and great character with the crown molding and wide baseboards. Another nice feature is the tasteful lighting throughout the home.
The kitchen is another space in the home that investors need to look at critically. Make sure the cabinets are in good shape, all appliances are in working order, and it is large enough for basic cooking and dining purposes. This particular kitchen is a bit dated but still attractive. It has a nice cottage look that compliments the home, and all the appliances are included in the sale. The cabinets are in great shape and provide plenty of storage for families of all sizes who might move in. That is ideal because you don’t want to purchase the home and then have to purchase new appliances to furnish it. I would not recommend doing much to this kitchen to prepare for tenants. In fact, I think a deep cleaning is all it would require prior to housing new tenants.
What do you think so far?
The current owners updated both of the bathrooms, so that is another major investment that a new owner/landlord would not have to worry about. The layout of the home is another feature of this home that makes it a sound investment. Like I noted, it has three bedrooms, one of which is on the main floor, and the other two are upstairs. This layout would work for many different types of tenants, which makes it very marketable.
The backyard and outdoor space are also outstanding selling points for this property. In the Evansville market, homes at this price point do not typically have a nice backyard. This particular home has a great little fenced-in yard, plus a storage shed. As a landlord, if you choose to allow pets, this would be a perfect space for them, and families with children would also appreciate the safe backyard to run around and play. Additionally, I notice the large patio that has plenty of room for a grill and some furniture.
This house is near one of the universities in the city, so rental properties in this area are popular with both undergraduate and graduate students. As you can see in the photos, the home is in excellent condition, so a stringent screening process would be the best way to determine to whom you rent. You need to protect your investment, but you also want to keep tenants in the home, so just figure out what you are comfortable with in your business.
I have nearly convinced myself to go make an offer on this property, and I hope I’ve taken some of the guesswork and mystery out of looking at potential investments. Remember that investment properties are business decisions, and while this home is cute and charming, the financial figures are what really make it a great choice.
What do you like about this home as an investor? Would you make an offer? I’d love to hear your thoughts!