**This article was updated on April 21, 2021.
When it comes to buying investment properties in the general Portland area, single-family homes often provide a great option. They tend to be in demand more often, attract long-term residents, and appreciate over time. However, a bargain property isn’t always a good deal; market value is just one of the features to consider when choosing an investment property. When looking for a home to invest in, consider a few key factors to check carefully before making that offer.
Consider the Market Value
The first factor in identifying a good investment property should be the price. Finding a single-family residence offered below market value is a great start. However, keep in mind that the reason the home is priced low is just as important as the price tag itself. Homes in need of minor repairs or cosmetic updates might seem like a great deal – and often they are – but any extensive damage or major repairs could be a different story. Buying a fixer-upper might seem ideal, but anything you spend making the property habitable must be factored into your rental margin. Look for properties in good shape but underpriced, perhaps because the sellers are in a hurry or have estimated the value of their home incorrectly.
Location, Location, Location
Another important factor in choosing an investment property is the location. While it may be a cliché, the location of the home may determine whether you will be able to profit from your investment. Check out the neighborhood carefully, including the number of other rentals nearby and how much similar homes are renting for. Areas with low crime rates, good schools, good employment, proximity to public transportation and shopping opportunities, or other appealing features are ideal. Watch out for areas with a lot of vacancies or low rents – both indicate potential trouble. Your ideal location will offer single-family homes that have relatively low market values but comparatively high rents.
Calculate Your Rate of Returns
Beyond the price of the home and the location, you must also crunch the numbers and understand the rate of returns. In real estate, the rate of returns, or capitalization rate, can vary by area but usually ranges between 4% and 10%. To find the capitalization rate for a potential investment property, calculate your net operating income (rents minus expenses) and divide it by the home’s sales price. Be sure to include things like property taxes, which you can get from the county assessor’s office, association fees, and any extra insurance required if the home is in an area prone to natural disasters. On average, it’s best to keep total expenses to about 50% of the gross rents – this is known as the 50% rule. If any property you are considering doesn’t offer a good return, shop for another property because the residential market provides a large supply of homes to choose from.
Keep Costs Low
Finally, to ensure the continued profitability of your investment property, you must keep costs low. You need a trustworthy, professional property management company that understands your investment goals. At Real Property Management Assurance, we have the expertise to reduce your costs and help keep your profits high. With our competitive pricing and guarantees, you can be confident that your real estate investment is in the right hands.
If you’re interested in learning more about how RPM Assurance can help your rental property become as profitable as possible, or would like more advice on potential deals, contact us today or call us at 971-270-2600.
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