How To Find Investment Properties To Invest In
Note: This is Chapter 2 of an entire guide on How To Buy Your First Investment Home
Great! So you've decided that you want to become a real estate investor AND you have the resources (time and capital) to do so!
You're on the first step to financial independence and financial security. And you're ready for the fun part: sourcing and finding properties.
Since this article is geared towards beginners, I'll assume that you'll be starting small: a single-family rental, duplex, triplex, or maybe even a quadplex. All of these still fall under residential real estate which makes it easier for individuals like you to purchase them. Over time, you may move upward as you become more experienced!
In this chapter, you'll learn about what you should be looking for and how you can actually find it.
What to look for in a property
Real estate investing at its core is to generate money. So, you'll need to look out for the financials of the property, specifically, cash flow and appreciation. These should ALWAYS be top of mind as you are looking for a property. Why buy a deal when it doesn't generate a positive return on investment?
How can you tell that an area might appreciate faster than others? There isn't a single factor. But some of the factors you want to look into:
Is there lots of commercial areas being developed nearby?
Are there more expensive (luxury) stories being built nearby?
Are companies moving into your city or town?
Is the neighborhood being improved by neighbors?
Are home prices increasing in the area over 3%?
These are just a few of the questions you should ask yourself. In an ideal scenario, you would invest in an area that has potential for higher appreciation. For example, at Doorvest, we are currently investing in the Houston-metroplex, an area that has had huge growth every year in home values as large corporations move into the city. See why we're confident in Houston in this article here.
In terms of cash flow, distressed homes that can be renovated often offer the highest cash flow. Renovating a distressed home is much cheaper than purchasing a brand new home, which means more money in your pocket every month.
Figuring out what you're looking for as an investor
Your risk tolerance is likely to be way different than another person's! Some investors are okay rebuilding the entire house. Others rather do cosmetic work.
By understanding your tolerance for renovations, finances, and more, you'll better understand how much risk you'll truly want to take on.
Okay, let's get into it. How do you actually find a property?
Explore areas.
For most people, the obvious answer is places close to home. Looking close to home has its advantages. You're familiar with the area, which neighborhoods are better, the school systems nearby, and more!
For others, it may be better to turn to a real estate focused company like Doorvest, who are able to invest cross-state. This means you can get access to properties you've never seen before, are cheaper, and that could potentially be better from a financial standpoint (higher cash flow and/or appreciation).
Explore the Internet.
The internet is amazing at connecting sellers and buyers. There are thousands of websites dedicated to showing you new listings and even approximate prices. These websites are great to scan for general price trends, historical public data on homes, and occasionally, they'll have pictures of the internal of a home.
Talk to professionals.
Real estate agents, brokers, and other professionals see homes that you may not even catch. These people are great resources to make a business connection with as they might give you first touch on a home they are looking to sell. Moreover, they often know the local market and what to look for in an investment property.
Join a real estate investing club.
This one is less intuitive. People often think that joining a club of investors would just increase prospects for competition. But, more often than not, club members are trying to help each other by combining their knowledge. Some club members may even give up deals to others if they don't fit in their buy box criteria.
Connecting with wholesalers.
Wholesalers source these homes and resell it to you for a smaller margin. This might mean that you make less on the initial deal, but it often means hours saved in work and effort. Moreover, establishing a solid pipeline with a wholesale can lead to a strong relationship for continuously purchasing newer deals.
Conclusion
Sourcing deals is the first step in finding an investment property for you. And it's often the most fun step since you get to view homes and imagine what they could potentially be.
To reiterate:
Explore areas.
Explore the internet.
Talk to professionals.
Join a real estate investing club.
Connect with a wholesaler.
Don't worry if it takes you months to find a good deal. It's normal. It's better to have the perfect deal for you than one that might not be a fit 5 years from now.