If you’re looking to generate additional income for you and your family, buying investment property in Dallas-Fort Worth can be a great option. However, it’s important to carefully calculate whether a potential investment is right for you. To help you make an informed decision, we’ve compiled a list of rules for buying investment property. By taking these factors into consideration before making a large investment, you can increase your chances of success as a real estate investor in the Dallas-Fort Worth area.
Location, Location, Location
The importance of location cannot be overstated when it comes to investing in real estate. It is the one thing that you cannot change about a property, and it can have a significant impact on the success of your investment. When looking for investment property, it is essential to consider the neighborhood where it is located. So what do you want to see in a location?
- Convenience. Most people will want to get to the grocery store in a reasonable amount of time.
- Low crime. You do not want to have to deal with vandalism, theft or dealing with bad tenants you might find in a high-crime area
- No main roads. Nobody wants to hear traffic noises all day, or have high traffic in front of their home where children might be playing.
- No commercial property nearby. Commercial properties encourage noise, traffic, litter and vandalism.
- Proximity to schools. You will need to find a sweet spot as far as distance. Families will want a quick commute for their kids, however, homes adjacent to a school will often have lower property values. This is due to more traffic and kids loitering in the area.
- Things to do. You can tell it’s a good neighborhood if you see parks, shops and restaurants nearby.
Know Your Numbers
Investors use various methods to determine whether a property is a good investment or not. One popular method is using the “Cap Rate,” which is calculated by dividing the net income by the asset cost. For instance, if you buy a house for $150,000 and rent it out for $1,000 while incurring $200 in monthly expenses, your net income is $800 per month or $9,600 per year. Dividing $9,600 by $150,000 will give you a Cap Rate of 0.064 or 6.4% return on your investment.
Investors should set specific goals for their investment properties, and if the Cap Rate or other metrics aren’t meeting these goals, they should consider other properties. The “1% rule” is another popular method used by investors, which states that a rental property should generate monthly income of at least 1% of the purchase price. However, this rule may vary depending on the location and market conditions.
The “50/50 rule” is yet another popular method used by investors, which aims to maintain a balance between profits and expenses. According to this rule, 50% of the profits should cover expenses such as repairs, taxes, and rental costs, while the remaining 50% should cover the mortgage. By keeping a close eye on metrics like these, investors can ensure that they are making sound investment decisions and maximizing their returns.
Don’t Get In Over Your Head
Flipping homes can be an exciting endeavor, but it’s important to understand that there’s much more to owning a successful investment property than what you see on TV. Before you dive into the world of real estate investing, it’s important to know your limitations and make smart decisions.
If you’re not familiar with rehabbing a home, don’t purchase a property that needs extensive repairs. It’s important to have a professional inspection done to ensure that there aren’t any hidden issues lurking behind the walls. Discovering additional problems can lead to unexpected expenses that can quickly eat into your profits.
Working and partnering with a team of like-minded professionals can help your investments thrive. Whether you’re a seasoned investor or a novice, surrounding yourself with experienced real estate professionals can help you make informed decisions and avoid costly mistakes. Building a network of contacts in the industry can also provide valuable resources for future investments.
In addition, it’s important to have a solid understanding of your financing options, as well as local market conditions and zoning laws. Doing your due diligence upfront can help you identify potential risks and opportunities that can impact the success of your investment.
Ultimately, investing in real estate can be a profitable and rewarding venture, but it requires careful planning, smart decision-making, and a willingness to learn and adapt to changing market conditions.