Tips for Buying an Investment Property

Randal:
Looking for R.O.I.? Do you want it on the front end or the backend? Stay tuned, let's talk about it.

Erik:
This week we're here to talk about...

Randal:
Investment properties.

Erik:
Yeah, and return on investment, R.O.I.

Randal:
R.O.I. The really interesting thing to look for as you're looking at investment properties. We happen to be situated in an urban market where we're seeing very large gains year over year in value of properties. What we are also seeing is that when you buy something as an investment, where you start to see income generated from those profits, is not right away. Our cap rate on our investments in the city are sometimes very low. They're running three, four, five, six, 7%. Okay? And a cap rate is just your capitalization rate. Wow, jinx. Anyway, your capitalization rate is very important for investors.

Erik:
And that's because you're in the city. We're in Boston. Our prices are very high, so the cost of getting in to investment properties can be very high.

Randal:
So really your R.O.I., or your return on your investment as far as monthly income is many years down the road, right? So many times you're not seeing that monthly income generated until you start seeing those rents creep up higher than the area that you purchased the property. Now, what's really interesting is to compare and contrast that against some other areas where they're not seeing the increase in property values.

Erik:
Like Locations around the country.

Randal:
Locations around the country.

Erik:
The cost of buying an investment property might be relatively low and rent still pretty good.

Randal:
So what we're also seeing is that you can go into those markets, so it's very stable markets, buy something at a really reasonable price, you're getting your R.O.I right that day.

Erik:
On a monthly basis.

Randal:
On a monthly basis.

Erik:
It's an investment property based on immediate monthly return.

Randal:
Yep. So you may go to sell those properties five years from now, 10 years from now. They're not worth a whole heck of a lot more money.

Erik:
But you took that in little parcels as you go along.

Randal:
So really the takeaway from this is where do you want to take your money, right? Do you want other people building equity on your behalf by paying your mortgage in a property that's increasing in value year over year, or you rather in a rental situation, be renting a property where you're taking a little bit of money for managing.

Erik:
More income generated.

Randal:
More of an income generating platform whereby you're taking your R.O.I. On a monthly basis, and then when you go to sell the property years from now, you're not seeing that huge gain, but you've seen it on the front end. So it's really front end versus backend on investments.

Erik:
So what's your investment goal? What's your ability and what's your investment goals? So if you're thinking about investment properties.

Randal:
Take those things into consideration.

Erik:
There's a couple of little nuggets, hopefully that's helpful for you to understand a little bit more about what your options are and how you might get a return on your investment.

Randal:
R.O.I. Right. We'll talk about them again later. Anyway. Thanks for watching everybody. Until next time, stay tuned and stay focused.

Randal:
Roy, haven't you met Roy?