On the hunt for an investment property? Not sure how it works, or what to evaluate when searching for the right real estate investment? 23 Legal is here to help! Whether you’re a first-time buyer or an experienced investor, read our guide for finding the right investment property that meets your financial goals and interests.
Real estate investing can be an effective way to strengthen your financial position and bring in additional income. However, it is not a decision that should be made lightly or without proper knowledge. With the right strategy, a solid understanding of the market, and proper planning with an expert, success is possible!
That’s why 23 Legal is here with a guide that simplifies the steps involved in real estate investment and helping you choose the best opportunity!
What is an investment property?
An investment property is a piece of real estate that is bought with the intention of earning an income or making a profit. Unlike the main residence, it is not designed for actual living with all the facilities that may be involved in residence. Real estate investments can include everything from individual properties to a large complex, as well as income-generating properties such as flats, offices, shops and even plots.
Examples of common investment properties:
- Residential Rental Properties: Single-family homes, multi-family units, and condos.
- Commercial Real Estate: Office buildings, retail spaces, and warehouses.
- Vacation Rentals: Short-term rental properties in tourist destinations.
- Industrial Properties: Manufacturing facilities and distribution centers.
Why Invest in Property?
As experienced real estate investors know, there are many advantages to investing in real estate. Not only will this help you increase passive income, build wealth, and create tax-saving opportunities, but it will also pave the way for greater financial security and generational wealth. The first step in getting started on your journey is to get pre-approved for a single or multi family home mortgage so that you have the funds in place and ready to go when opportunities arise.
Individual situations and financial goals may influence why people invest in real estate and look for investment properties or foreclosures. For example, house flippers typically look for houses to buy at a low price and sell for a higher price later, whereas rental property investors are typically looking for homes to hold onto that can generate passive income over time. However, regardless of your goals and motivations, or what flippers are looking for, understanding how to find the right investment property is critical to creating a viable income stream or business.
Passive Income Generation
- Rental Income: An advantage is that there is an ability to generate steady revenue from the rent collected. This can provide a steady stream of revenue, even during economic downturns.
- Long-Term Stability: To begin with, rental income can be predicted and may be more stable than other forms of income, thus is more secure in a manner.
Wealth Building
- Appreciation: Property prices are generally known to appreciate over time, all the more where the market is expanding. This appreciation can in turn mean massive profits when the property is liquidated.
- Equity Growth: Over time, your equity in the property grows as you pay down the mortgage on the home. This equity can be accessed through an ARM or Home Equity Loans.
Tax Advantages
- Deductions: It is, however, common knowledge that an investment property owner is usually allowed to offset from the taxable income all or some of the expenses like interest on the mortgage, property taxes, insurance, and costs of maintenance.
- Depreciation: Normally, the property can be written off as an expense over a given period of time, so as to attract tax benefits.
Diversification
- Portfolio Balance: Real estate can diversify an investment portfolio, reducing overall risk. It often performs differently from stocks and bonds.
Hedge Against Inflation
- Preserving Wealth: Historically, real estate has been a good hedge against inflation, as property values tend to rise with inflation.
Forced Savings
- Building Equity: Mortgage payments force you to save money, building equity in the property over time.
Define Your Investment Goals
Before you start your property search, clearly define your investment goals:
- Income Generation: Focus on properties with high rental yields to maximize cash flow.
- Capital Appreciation: Prioritize properties in growing areas with potential for significant value increases.
- Tax Benefits: Consider the tax implications of different property types and how they align with your financial situation.
- Risk Tolerance: Assess your comfort level with market fluctuations and potential challenges.
Ways to Find Investment Properties in Illinois
Work with Real Estate Agents Specializing in Investment Properties
A real estate agent can be a valuable resource in your search for investment opportunities. That’s because, whether you’re looking to flip houses or buy rental properties, few people know the areas or markets better than a local real estate professional. Keeping this in mind, establishing a strong working relationship with a good real estate agent can lead to a consistent source of tips and leads, as well as freeing up your time to focus on repairs or property management.
Utilize Online Real Estate Platforms
Websites and apps that list real estate properties allow you to search for investment opportunities using a variety of criteria. Use search filters to find properties that meet specific investment criteria (such as price range, location, and property type), and set up alerts for new listings. Use the platform’s tools to compare property values, rental rates, and neighborhood trends.
Multiple Listing Service
The multiple listing service (MLS) can also be a helpful friend because it provides a comprehensive database of properties for sale in your area. Of course, because everyone else (including other real estate investors) has access to it as well, the trick is to be able to act quickly when an interest-worthy property becomes available. That means knowing the area and having proof of funds or a mortgage preapproval letter ready to back up any offer you intend to make. Again, having a real estate agent (or real estate attorney) available to answer any questions you may have is beneficial if you are ready to make an offer.
Conduct Market Research
Conducting thorough research on specific neighborhoods and market trends can assist in identifying promising investment opportunities. Making informed decisions Discover local property values, rental rates, and future development plans. Strategic Investment concentrates on neighborhoods with high growth potential and strong rental demand. Reports from the local market Local agencies and research firms provide real estate market reports and analysis. Analyze the neighborhood To evaluate investment opportunities, consider neighborhood demographics, crime rates, and school ratings.
Pursue Short Sale Opportunities
Another source of leads for off-market properties is if you hear about a financially distressed homeowner. In this case, you might consider reaching out and contacting them gently and respectfully to see if they’re open to the idea of a short sale, which could result in a financial win-win for both parties. Those considering these types of investments should keep in mind that short sales typically mean that the homes are being sold as-is.
What to look for when evaluating an opportunity…
Location, Location, Location
- Neighborhood Analysis: Spend time to familiarize yourself with the demographics of the area, the levels of crime, educational institutions, and other facilities, among other aspects.
- Job Market: A good job market is a magnet to those seeking homes and may even push up the prices of the properties in the area.
- Public Transportation: This is an implication that property accessibility to the public transport system augments its market value.
- Future Development: Look at future work that might be carried out; and work that may affect the value of the property.
Property Condition and Potential
- Property Age and Condition: The properties I am looking for are those, that need to be renovated more frequently, but they cost less at the same time. Introducing a trend of ‘newer properties’ there is always likelihood that they will be expensive but they are likely to demand less immediate repair.
- Maintenance Costs: Forecast outlay for contingencies, that would be required for repairing and maintaining the assets over a period of time.
- Renovation Potential: Evaluate if the property needs additional upgrades so as to increase the value or the rental income.
Financial Analysis
- Rental Income: Calculate potential rental income based on market rates and vacancy rates.
- Cash Flow: Determine the property’s cash flow after considering mortgage payments, taxes, insurance, and operating expenses.
- Return on Investment (ROI): Calculate the potential ROI to compare different investment options.
- Exit Strategy: Consider how you plan to exit the investment, whether through selling or refinancing.
Additional Considerations
- Property Management: Decide whether you are going to take responsibility for managing the property on your own or get a property manager.
- Diversification: It also advises to diversify taking land in assorted property types or areas as a method of minimizing risk.
- Long-Term Goals: Personalize your stock with your financial goals.
Before Signing Any Documents…
Legal Considerations
Always consult with an experienced attorney (like Ben Weaver) before executing any real estate transaction! Real estate law can be complex and you need a lawyer who can protect your interests.
Due Diligence
The minimum requirement is to carry out a comprehensive investigation of the property before buying, including checking on the title deed, the zoning laws of the property, and an environmental scan. This step is important in order not to meet legal or financial troubles in the future interventions. A real estate lawyer can assist with this!
Inspection and Appraisal
Consult an inspector as to the mechanical condition of the property and an appraiser as to the fair market value thereof. This will assist you in avoiding such a scenario and also highlight any problems that might be present within the property.
Contract Review
If you’re ready to sign some documents, we highly suggest you consult a trustworthy attorney first! This consists of the purchase contract, lease contract where the case may be, and any other financing contracts. Do not sign any term that is not clear nor one which has clauses that could be detrimental to your company in future! 23 Legal is happy to help you look over documents and review in between the lines to protect your bottom line.
Consulting with an Attorney Before Investing in Real Estate
Sourcing for a proper investment property is not an easy task but it involves research and consulting various professionals. When it comes to making decisions, you should be competent enough to label your goals, assess the market, and evaluate the opportunities carefully in accordance with your financial interests. However, it is important to seek the professional services of other service providers like 23 Legal to enhance the success of the investment.
Purchasing real estate can be a financially fulfilling investment at the same time providing steady income, and appreciation. However, if done in the right manner, one can assemble a portfolio that addresses their needs and provide for their future.
With decades of real estate law experience in Illinois, attorney Ben Weaver is very familiar with the Chicagoland real estate market and the purchase & zoning of investment properties. 23 Legal’s clients also benefit from Ben’s excellent negotiation skills, coveted local contacts, and his attention to detail when reviewing documents. Connect with us today for expert guidance!
Planning to invest in real estate? We can help with the legalities!
Accomplish your real estate goals with 23 Legal: (847) 447-6004
Why Choose 23 Legal
23 Legal offers Real Estate and Estate Planning legal services to individuals, families, community associations and small business owners throughout Chicagoland. We know how intimidating “the law” can be. In fact, when most people think of law offices, they think of stuffy leather chairs, huge wooden desks and pompous lawyers who charge outrageous fees. That’s not us! We believe in 1-to-1; the same lawyer should work with you all the way through. Whether you have an estate planning issue, family trust concern, or you have a legal problem in regard to a new home, business, real estate or remodel, you need a lawyer who cares. That’s where Ben comes in! We are great listeners; more than that, we are lawyers who believe that our clients always come first.
