Knowing how to find investment properties for sale in the real estate market is the key to earning anticipated rental income and profits.
Finding investment property for sale isn’t a one-size-fits-all approach, since there are many ways to invest in real estate.
Check out our guide on finding good investment properties for sale to make the most of your goals as a real estate investor.
Determine Your Investment Strategy
Before buying investment properties, you should determine your investment strategy.
This will help you determine which investment properties will help you reach your goals. For example, there’s a significant difference between flipping houses and holding on to rental property.
Every real estate investor has different ideas and strategies, which are essential when finding investment properties.
The BRRRR method, or “’buy, rehab, rent, refinance, repeat,” is for investors who can find undervalued distressed properties, fix them up, find qualified tenants, refinance the property, and repeat.
The “refinance” part of the BRRRR method is a cash-out refinance. The point is to build equity in the home by improving the property’s value by rehabbing it. The higher after-repair value provides more home equity.
You can use the home equity on a conventional mortgage cash-out refinance. Use the excess cash to buy an investment property to increase your real estate portfolio.
This investment strategy works best for investors who want to build a more extensive portfolio. The cash-out refinance provides the down payment to purchase another undervalued, distressed property.
Ideally, you shouldn’t invest more than 70% to 75% of the property’s after-repair value (ARV), or the anticipated property value after renovations, to make the BRRRR strategy work.
This method allows for greater cash flow, allowing investors to take advantage of hot deals when they hit the market.
If you can’t move fast, someone else will. So the BRRRR method provides the best of both worlds: You own an investment property but also have capital available to purchase more.
To make this method work, you must be willing to find investment properties for sale often to take advantage of the best deals.
House hacking is a strategy for real estate investors who can rent part of their primary residence. This is often a good method for a first rental property, as it allows for more cash flow.
You can house hack by purchasing multifamily properties, such as a two- or three-unit building. The key is living in one unit and renting out the remaining units.
However, if you don’t have the capital to afford the purchase price of a multiunit property, you can use the method on condos, townhomes, or even single-family homes.
As long as you live in the house, you can rent out other bedrooms and use the money to cover your housing costs. This includes property taxes and homeowners insurance.
Even if you don’t profit from the rent charged, you’ll save money on housing expenses and potentially benefit from your taxes by deducting depreciation and other housing expenses—all while earning equity in the home.
House flippers are real estate investors who enjoy finding undervalued investment properties, rehabbing them, and selling them for a profit.
Unlike the BRRRR method, you don’t hold property when flipping houses. Instead, you buy an investment property, rehab it, and sell it as quickly as possible to minimize the holding costs, as they decrease your profits.
You don’t need special skills or even a license to find an investment property to flip. The key is to have a network of real estate professionals working with you, including a real estate agent, mortgage professional, real estate attorney, and contractors.
With a circle of reputable real estate professionals, you can quickly jump on investor-friendly properties for sale, taking advantage of the opportunity to flip houses.
Buy and hold
Buy-and-hold investors purchase investment properties for sale to hold on to and use as rentals.
When done properly, it’s a long-term investment strategy that provides passive income through monthly rent. Proper research is the key to investing in real estate.
You should know more than the property’s market value when you buy an investment property. Holding on to a property to earn rental income requires extensive research into the area’s rental market, including the area’s safety and school ratings.
Don’t assume any real estate investment will turn a profit; instead, do your due diligence to ensure you’ll see the desired returns.
Short-term or vacation rentals
You can also consider investing in short-term or vacation rental property. Unlike buy-and-hold properties, you rent for a few days, with a maximum of 30 days in most states.
The popularity of sites like Airbnb and Vrbo has increased the number of rental properties investors purchase for short-term rentals.
Like any real estate property, you must know the area to ensure it’s lucrative for short-term rental properties.
If you find the right area, you may make much more than what you’d earn from traditional rental properties, since the rent charged per night far exceeds the per-day rent charged to long-term tenants.
Some real estate investors prefer short-term rentals because they can control the schedule. You can optimize pricing for busy seasons and offer many opportunities for tax deductions.
How to Find Investment Properties
After choosing your investment strategy, it’s time to learn how to find investment properties.
The best strategy includes the right real estate professionals and plenty of legwork. Here are the tips and tricks to start your real estate investment strategy.
With an investor-friendly real estate agent
Real estate agents specialize in different properties and types of real estate transactions.
If you partner with a real estate agent to find investment properties, ensure it’s someone with extensive experience in the real estate investment industry, specifically in the property type you want to purchase.
There’s a significant difference between a real estate agent who helps first-time homebuyers and one who helps real estate investors find the perfect property to buy and hold or fix and flip.
Finding the best real estate agent for the job can mean the difference between a profitable investment and one that causes more headaches and financial stress than you anticipated.
Real estate listings
Accessing real estate listings from as many sources beyond the multiple listing service (MLS) provides more potential. Some properties sell quickly before real estate investors can see them.
Perusing multiple real estate websites to see as many opportunities as possible is essential.
Even if you work with a real estate agent, you can do some legwork yourself.
For example, you can show interest in properties on sites like the BiggerPockets real estate listing site to gain early access to the property and be one of the first bidders if it’s a good fit.
Real estate investing groups
Surrounding yourself with like-minded people may be one of the best tactics to find investment properties for sale.
You may think other real estate investors are competition. Instead, they can be a source of referrals and helpful information.
You may receive referrals for wholesalers, contractors, and even properties for sale that meet your needs, but not the person referring them to you.
Look for local real estate investing groups, or use online forums like the BiggerPockets forums to connect with real estate investors nationwide.
If you’re in the market for a fix-and-flip property or want to start the BRRRR process, attending local housing auctions may help you find off-market properties for sale at prices much lower than their value.
Lenders sometimes auction foreclosed or bank-owned properties that are run-down and need a lot of work. This method requires extensive networking to find auctions to discover hidden gems.
However, beware that most properties at an auction are sold as-is, and you may not have the opportunity to inspect them first. This method may not be best for your first rental property, but it can be a good way to increase your portfolio.
Real estate wholesalers
Real estate wholesalers do all the legwork that some real estate investors don’t have time to handle.
Wholesalers are experts at finding undervalued properties in the local real estate market, putting them under contract, estimating the necessary work and ARV, and assigning the contract to real estate investors like yourself.
Real estate wholesalers target motivated sellers on the verge of losing their homes to foreclosure, allowing investors to purchase undervalued properties before they hit the housing market.
Property management companies
Property management companies work directly with property owners, managing their properties.
They are usually the first to know when owners want to sell their residential properties, providing you with inside information to act quickly before the property hits the market.
Many properties for sale that property managers share are move-in ready and require little to no work before renting them to tenants.
Drive around the area
If you don’t mind doing a little legwork yourself, drive around areas where you’re interested in purchasing the right investment property and look for potential properties.
You may find homes hitting the market, homeowners considering selling, or run-down/abandoned homes that you can purchase for a low price, fix up, and sell for a profit.
Word of mouth
Let everyone know that you’re a real estate investor always looking for investment properties.
Talk to friends, family, real estate professionals, contractors, insurance companies, mortgage lenders, hairdressers, and even your favorite barista.
You never know who might know someone who is selling the perfect property, leading you to investment properties that check all your boxes.
Look for short sales
If you hear of a distressed homeowner who cannot make his mortgage payments, consider contacting them to discuss a short sale.
Like foreclosures, short sales are usually sold as-is, so it may be a fixer-upper situation, but it could allow you to purchase profitable investment properties.
How Do You Determine a Good Investment Property?
No two real estate investors have the same idea of good investment properties. What is profitable for one investor may not be ideal for another.
The key is understanding your real estate investing strategy to find investment properties that meet your needs and allow you to reach your financial goals.
Here are three common areas to focus on.
1. Location and market analysis
Location is everything in real estate investing, but market analysis holds just as much weight.
You can find an investment property that seems perfect on paper. Still, if it’s not in a busy rental market or the property values don’t regularly appreciate, you may not realize the anticipated rental income or profits.
2. Repairs and maintenance
Carefully consider the property’s necessary repairs and maintenance. If it’s a fix-and-flip, this plays a vital role in your profits, but considering this factor can be important in any real estate investment transaction.
Take into account how well the property was maintained and how you’ll handle maintenance moving forward. Factor in whether you’ll pay a property manager to handle it, as this will increase your overall costs.
3. Cash flow
Your real estate investment strategy will also determine what you should look for in cash flow. If you’re investing for rental income, you should carefully evaluate the property’s costs and potential to ensure you’ll have the desired cash flow.
If you’re purchasing an investment property as a fix-and-flip or BRRRR, you’ll have different cash flow thresholds, which will play a role in how to find investment properties.
The Bottom Line
Knowing how to find investment properties is crucial in your real estate investment strategy.
Before looking for the perfect investment property, determine your strategy, long-term plans, and risks you’re willing to take, and then take steps to find properties that meet your needs.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.