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What Is Your Investment Property Due Diligence

Long Term or Flipping

Determine whether you desire a long-term property investment or a “flipping” property. Long-term investments produce positive cash flow, increasing your net worth. If you plan to flip, your focus will be on property appreciation and a quick return.

Flipping Caveats

Your profit margin depends on your acquisition cost, and it’s important you buy the property at a low price so you can sell at a profit. However, finding that property at a low price is getting more difficult as inventory drops and currently, it’s a buyers’ market.
If a property is super cheap, the amount you may need to spend on repairs will drive up the cost.
Even if you buy at a great price and get the property ready for the market, there’s no guarantee it’s going to sell.

Good Property Features

Research areas that have features to enhance the value of your investment.

Quality neighborhoods close to a metro area and properties near business districts are all desirable locations.
Close to public transportation. Public transportation no more than 15 minutes away from the property is ideal.
Lifestyle amenities within 10 minutes of the property. These include malls, schools, libraries, theaters, parks, restaurants, cafes, and gyms.
Areas that have a good renter to homeowner ratio.
Need to check with local police for crime statistics in the subject neighborhood.
Jobs market.
Property taxes.

Get a Feel for the Neighborhood

Park your car, and walk around to chat with anyone willing to share insight on the neighborhood. Check with the city or county planning department to get an idea of what the area’s future holds. New business developments such as new retail outlets mean area growth is good news. If new subdivisions and apartment complexes are planned, they could drive down your rents and increase your time in finding a suitable tenant and lower the value of your investment.
Consult with a Professional

Never take a Realtor’s claim on his or her rental rate projection; it could simply be a sales ploy. If you work with a Realtor who is representing you on the purchase of an investment property, get a second opinion from a professional property manager such as TierOne Real Estate Property Management.

Bonus Advice

Avoid areas that have 2 or more apartment communities; scarcity is a desirable attribute, since rents nosedive with plenty of available rental units.
Try to buy the property at least 10 percent below market price. This gives you room should you decide to sell the property.
The specific property you buy dictates the time required to manage it.
Several investment property types require substantial property management. These would include college rentals, vacation rentals, and properties in crime-ridden or low-income areas.
If you buy a high-maintenance property, you should hire a property management company but expect to pay a premium. You can expect to pay 10-15 percent of the rental gross and lease fees as well. You will also incur higher administrative and legal fees as well.
Be open to discuss your plans with real estate professionals. These folks have great insight into the market, and they are more than happy to spare a few moments to offer advice.

The Bottom Line

Most important point I can make is to discuss rental rates and occupancy factors with a professional, one who does property management for a living. Remember, rarely does the sales agent helping you find and close investment rental property have the knowledge that a property manager has within that given market area. Make sure you go over all available data on the property you plan to buy, and do a thorough investigation to make sure your decision is sound. Since knowledge is power, though, due diligence always pays off in the end. And, last but not least, always discuss with a professional property manager.

If you have a question about this topic or need assistance with anything else, contact a TierOne Real Estate Property Manager at 801-486-6200 or use the form to the right – we are here to help you with your rental/investment property whether you are a current client or one in the making.

Licensed with the Utah Division of Real Estate