Smaller investment properties often offer significant financial / economic benefits, in terms of creating a combination of asset growth, return on investment, and some degree of security. However, this is true, only if the buyer, first, completely, understands what to look for and why. Different potential properties, have variable potential, for optimal performance, etc. While not everyone can consistently care for, pay for, or get involved in major real estate deals / purchases, many more people are able to take advantage of smaller properties, etc. These vehicles often include one to four, family / unit, homes, and while some offer attractive investments, others may not – always! With this in mind, this article will briefly attempt to consider, examine, review and discuss 4 important, significant, top / essential considerations and assessments.

1. Cash Flow: Cash flow, when it comes to these, generally refers to the difference between funds / income received and monthly costs. It is important to consider these conservatively, basing assessments, not on the highest potential rent, but on market-based rents, and no more than 75% occupancy (to avoid, a potential, cash-crush, if there is any interruption, due to a variety of possibilities / contingencies). In addition, the investor must take care to ensure that his personal cash flow is not affected, by using too high a percentage of his reserves, for initial expenses, as well as to create reserves, etc.

2. Local area / neighborhood / market: Before making the leap, thoroughly consider and evaluate the conditions of the local real estate market and discover the market, for rentals, in terms of availability, demand, advantages and / or disadvantages. Get a deep understanding of the specific area and determine, if it offers, the best setting for you and your priorities and purposes!

3. The 6% rule: Many pay close attention to what is often referred to as the 6% Rule, when it comes to buying smaller investment properties. This means that three-quarters of a realistic rental list must make at least a six percent profit. Expenses should include: mortgage-related expenses, including principal, interest, taxes, and escrow; landlord – utilities paid; repair; renovations; updates and reservations, etc.

Four. Property status: Understand the existing condition of the property in question and what will need to be addressed immediately, intermediate and long term. Reserve funds must be used and prepared for as many contingencies as foreseeable, etc.! On the other hand, don’t get too swayed by staging and overestimating your rent rolls!

After more than 15 years, as a licensed real estate seller in New York State, I firmly believe in the possibilities and advantages of investing in smaller investment properties, but only when it is done, with care. And in a focused way! The smarter you proceed, the better you will be!

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