requires work: finding tenants, taking care of their needs, maintenance, participation in housing company administration, taxation...
Raitala says that a serious investor will do his / her homework before committing to anything – and this means crunching some numbers. First thing to consider is the cashflow: what could be considered a realistic cashflow, taking into account, for example, changes in tenants, day-to-day maintenance costs and property renovations? Sometimes housing companies own apartments or business premises in the property which, in turn, generate revenue to the company.
“ On the other hand, there may be various factors which make life tougher for the housing company, such as the expiration of land rental agreement and a new agreement which is more costly,” Raitala says.
Price of Money
Then there is the question of financing: how much of your own money are you willing to invest and how much comes from the bank?” The interest levels won’ t stay at the current low levels forever,” Raitala cautions. Also taxation practices may come as a surprise( e. g. tax treatment of renovation costs).
Through all of this, Raitala points out that the investor must keep his / her eye on the big picture: instead of focusing on a single property, be mindful of the rest of your portfolio and your financial situation in general. If hefty renovations hit some key properties, there may be need for a quick exit plan with regards to other real estate assets.
When it comes to target selection, Raitala observes that many elements come into play here – but it all starts with the location. Good traffic connections are a big part of the equation as well as zoning – what’ s in the cards for the neighbourhood, say, five years down the road? Also, you must consider the surroundings of the apartment, if there is frequent pollution from traffic or an active construction site next door.
“ Take note of the general price development in the area. Then you can decide if you’ re simply following others that have made the investment in a popular area or do you look for alternative areas that also enjoy good location.”
Get Technical
Assessing the technical condition of the investment is another must. At minimum, you must be aware of the schedule for major renovations in the building. When it comes to the apartment itself, it’ s a good idea to have an expert verify its suitability.
“ If you’ re renovating the apartment, get bids from various companies, exercise proper caution and keep the receipts.”
When determining the desirability of the apartment, a flexible floor plan is often a smart way to go. Still, even if the floor plan is not optimal, putting in quality materials is sure to attract tenants.
Which brings us to tenant selection. Raitala comments that outsourcing this part is always an option, but if you’ re willing to find the tenant yourself, it’ s not really brain surgery: the number one thing is to make sure that the tenant can handle the rent every month. Familiarising yourself with the history / recommendations of the prospective tenants should help in this process.
Taking Care of Business
According to Raitala, a smart private investor will also pay attention to the administration of the housing company.“ You should participate in the decision-making of the housing company,” Raitala says, adding that if the company has a great property manager to supervise the assets that is already half the battle.
Of course, when looking for an investment opportunity, there’ s less room for emotional / soft factors that always impact you when you’ re out there trying to find a home for you and your family. Raitala points out that you should always stay in the realm of rational issues – where price tags are easier to figure out.
“ Having an expert by your side, a good realtor or a lawyer, can help you assess and decrease risks,” she says, adding that using quality professionals goes a long way to making sure that your investment is a winner from day one. l
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