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Characteristics of Good Investment Properties

Posted by Ken Meyer on Wed, Jul 10, 2013

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Regardless of the size, cost, location or even type of investment properties, good candidates for growth-oriented investors all share the same three inter-related characteristics. A property that presents a problem that you can solve now to make it desirable in the future should give you multiple exit strategies.

Short-Term Flaws

Many real estate experts say that you make your money in investment properties when you buy. However, most of them don't explain how to do that. The secret to creating growth in the value of real estate investments is to find one with a problem or flaw that makes it unattractive to investors. The investors that will pay the highest prices for properties frequently lack the vision to see a property's potential once its flaw is corrected.

Buying investment properties with one or two flaws puts you in a position to create equity. As you improve the property, the universe of buyers expands to include the precise ones that overlooked the property when it had the flaw.

Long-Term Desirability 

While a flaw is important, the property also needs to be desirable. This is how you leverage the work that you did to improve it. Desirable properties don't have to be on Rodeo Drive in Beverly Hills, though. Just about any property can be desirable. It just needs to be appropriate for its area and slightly better than the average in just one small way. Having something that makes it stand out increases buyer or tenant interest, making it easier for you to sell or lease out. 

Finding a long-term desirable property also means actively avoiding undesirable investment properties. Four bedroom houses with one bathroom are an example of this. Another example is a property in a rough area that's getting worse.

Exit Strategy

While you make your money when you buy, it's all a paper gain until you sell. The best properties offer multiple exit strategies. For instance, if you bought a house to flip, and it was priced so that you could make a healthy profit on a flip transaction, that would be an exit strategy. On the other hand, if you could also hold onto it and rent it at a positive cashflow, you'd have a second exit strategy. A property that would be popular with longer-term tenants looking to buy on owner financing would provide a third exit strategy. Being able to get out lets you turn a winning property into your next one.

 

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