Investment properties can prove beneficial given their penchant for income production, tax benefits, and long-term value growth over time. They also are not for the faint of heart as managing them can present challenges like collecting rents, eviction of non-paying tenants, upkeep, and specific rules by municipality around how information and money must be handled.
The below gives you a general overview of how to approach investment properties from an acquisition perspective. Be sure to pay close attention to the CAP Rate portion. A CAP Rate of between 5% and 10% is considered good for real estate investments, the higher the better.
If you’re considering investment properties on Lake Minnetonka make sure you also understand rental rules and restrictions. Your realtor should be able to tell you and if they can’t call an agent who can.
#1 Choosing a Realtor.
Take a look at a recent article about Choosing a Realtor in the Lake Minnetonka area. This is the single most important decision you’ll make. You want someone who’s well networked, knows the Lake Minnetonka area, and most importantly can help you identify the best housing fit based on your needs today and how they may change over time.
Have a conversation with your realtor about where you want to be, why, and what are the “must” have versus the “nice” to have attributes of your new home.
If you don’t know the communities around the lake ask your realtor to take you on a tour. They’ll be able to explain each community, discuss proximity to key areas locally and across the metro, and help you better understand the nuances of each area.
#2 Pick a Lender
Your realtor will know a number of good lenders who can help you through the preapproval process. You cannot make an offer without a preapproval, and understanding what you can spend, and what it’s going to cost you monthly, is the most important step after selecting a Realtor. It will guide you in all phases of the search and offer process.
#3 Start Shopping
You and your realtor will discuss your needs and wants as it relates to Lake Minnetonka as part of steps one and two. You and your agent will then begin viewing homes. Your Realtor must also be well networked and will have access to ‘pocket’ listings. These are lakeshore homes that are not available to the general public. For more about pocket listings, click out TI article here, Pocket Listings in the Lake Minnetonka area.
#4 Calculate the CAP Rate
The capitalization rate (also known as cap rate) is used in the world of real estate to indicate the rate of return that is expected to be generated on a real estate investment property.
This measure is computed based on the net income which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage. It is used to estimate the investor’s potential return on their investment in the real estate market.
#5 Writing an Offer
Your Realtor will share comparable properties that have sold, an offer price perspective, and other key considerations as you consider your offer strategy. Your Realtor will also advise on the best approach to making an attractive offer that is likely to secure the home while also protecting your interests. Listen to your realtor. They are the expert. Also know that there may be competition for the home and your Realtor will push you to put your BEST foot forward. Make sure you do. There is nothing worse than knowing you could have done more but you missed the opportunity. In multiples you often get one shot for your best offer. Make it count!
#6 Closing Day
Break out the champagne, it’s time to celebrate! You’ve achieved your dream of owning lakeshore on Lake Minnetonka. One final tip; if you liked your agent and they did a good job for you recommend them to everyone you know, Lake Minnetonka or otherwise. Your agent will forever be indebted to you!