How to know whether a property is worth investing in?

If you are a property investor, you would know how carefully you’d have to juggle the real estate market. Everyone investing in a property wants maximum benefits with little or no cons. Did you know that in 2021, the average price of newly listed houses has increased 32.6% in the US?

In metro cities like Chicago and New York, these prices have risen 43%. But just investing in a property without prior knowledge can cost a lot in the future. So how would you know if the property you’re interested in is worth buying or not? Here are a few tips that might help you out.

Check for zoning issues and liens

One major way to find out if the property is worth it or not is by checking the zoning issues and liens. If a property has a certain characteristic or problem, it can lead to an immediate “no” by an investor. These issues and liens on small-sized non-institutional grade property are advantageous. They are too costly for retail DIY places but not enough for institutions.

The 1% rule

Many investors like to follow the 1% rule while checking out a certain property. This rule of thumb states that the property should rent out for at least 1% of the price it was bought at for yielding positive cash flow. The cash on cash return is another metric that is essential to find out the worth of the property. In general, you should aim for properties that provide at least 8% in terms of CoC return. If you are a newbie here, you should read up on the market rental rates in the area where the property is located for some insights.

Forget the HGTV hype

Don’t always have lofty expectations. No matter what they show on shows like HGTV, the properties in real life aren’t all that fancy. If you want to bag a really good deal regarding property investment, start with something not-so-great.

Buy the “worst” looking property around you and slowly renovate it as time passes. Make sure the kind of renovations you carry out don’t burn a hole in your pocket. Sure, the appliances might be old and the place might look shabby, but they shouldn’t be a dealbreaker for a beginner real estate investor.

Also, look at the value of the location and prioritize it over the values of replaceable things like tables and lights.

Cap rate

One important sign is the cap rate, which is the ratio between the net operating income of your rental property and its price. The cap rate of the neighborhood is also important here as it is a good indicator of the return that your own property will be able to generate. The price per square foot or the price per door is another essential factor to take into consideration. You should look for properties that are affordable and located in areas that are set to experience appreciation in the future.

Take note of the roofline

A well-known home inspector, Dylan Chalk, always recommends others to look at the roofline. Chalk has inspected some 5,000-odd homes and the first thing he looks at is the roofline.

The roofline shall give you a good idea about the sturdiness of the house and also tell you if it’s simple, elegant, vulnerable, or weak. Is the roofline original or has it been added later? Will it drain properly with ease? These are questions you can have answered by looking at the roofline.

Condition and presentation of the property

The condition of the house, along with its presentation, will tell you if you can buy it at a discount or not. If you see that the property has no photos online, you can be sure it has zero curb appeal. So you’ll be able to get a hefty discount on a little bit of bargaining. It can also prove that the agent who listed this property might just want to get it off their back and is willing to make a quick sale.

Price vs monthly rent

If you want to rent that property out, you should look at the price vs monthly rent. For example, if you buy it at $900,000 and rent it out at $9,000 per month, or more, then you’ve got yourself a good deal. Looking at the price as a factor of 100x monthly rent will determine the property’s worth.

Over to you…

These were a few simple but effective tips for understanding if your chosen property is worth a good investment or not. There are, of course, many other factors you should look out for. Talk to local realtors and other investors from your network about achieving an investment that is absolutely worth it!