SELECTING AN INVESTMENT PROPERTY
When it comes to making your real estate investment, there are four main factors in the selection of your real estate purchase that you need to think about:
1. The type of property you are seeking
2. Your current return needs
3. Your availability of capital, and
4. How it fits in with your total investment program
These considerations form the guidelines which fully determine what to buy, how to buy, and why to buy real estate. Each of these will be considered separately.
Type of Property
For our purposes here, we can classify property into two broad categories: (1) unimproved and (2) improved property. Unimproved is property is land only. This ranges from vacant lots in residential communities to large plots of raw acreage. Improved is property with some kind of building on it. This type of property includes residential income property (which includes duplexes through apartments) and commercial/manufacturing property.
The type of property you select depends almost entirely on (A) how much risk you are willing to take with your capital, (B) your cash flow needs, and (C) the amount of time and effort you are willing to devote to your investments. Consider the following general advantages and disadvantages for each kind of property:
Improved residential income property advantages are many, including a good return on invested capital, strong value appreciation, good tax shelter and good availability of tenants. The main disadvantage is that management is required.
Improved commercial/manufacturing property advantages include long-term tenants, limited management, consistent return on investment and good value appreciation. The disadvantages include limited tenant availability and that limited financing is available.
No property management is needed for unimproved property and there is a chance for very high appreciation. Some of the disadvantages include the fact that it is highly speculative and that there is no return on investment until it’s sold.
An investment in unimproved property is not recommended to new investors. Raw land is too speculative, but there is no doubt that many speculators have made money in this area. Often, however, they invest their capital with a degree of risk I would not care to take without considerable information about the property. The problem is that most of this information is not readily available to the investor, and therefore makes a well-informed investment very difficult. Conversely, a good investment in improved property can be clearly understood before you purchase, and tenants pay your property costs, buy your equity, and help you make a profit.
Mr. Scott W. Burch is a licensed commercial real estate agent, a private real estate investor, author and Registered Investment Advisor. Due to his experience and background, Scott is able to help clients successfully locate, analyze and acquire suitable investment properties. As a principal himself, Scott is able to bring a unique perspective to his work, understanding the needs of the seller, and the process of the buyer through which a new property is analyzed and acquired.