Table of Contents
When it comes to finding investment properties, there is a lot to do. But before you go out and start pounding the streets or searching through listings, there’s one crucial step to take: determining your target investing market.
Sticking to your business plan will be easier if you look for a real estate investment with a specific target area in mind. It will also facilitate you to stay focused on seeking good possibilities.
The sheer amount of investment options may intimidate you if you don’t have a carefully determined target market. It is never a great idea to have too many options. When faced with a plethora of investment options, you are more prone to make hasty selections. These are unlikely to align with your long-term ambitions or financial goals. A lack of options creates discipline—or, more accurately, a narrowed investing market.
It’s best to maintain your first investments within the same target area, choosing a market segment in which you are incredibly comfortable functioning over time.
Maintaining many assets in the same target market allows you to create tactics specific to that market. That will help you find your investment niche over time!
But first, did you know mortgage lenders have their own target areas where they will and won’t finance investment properties? Click the link below to book a free strategy call to learn more about what and where lenders will and won’t finance.
Why should you concentrate on a specific area?
Successful real estate investors always begin by concentrating on a single market niche. According to your own industry experience and expertise, you should carefully define that sector. There are numerous advantages to narrowing your attention and specifying your geographic parameters, including the following:
Master your product type
You can master your product type by focusing on a specific sub-segment of your local market. This will aid in optimizing your cash flow while also ensuring that your tenants have a positive experience. It’s tough to broaden your real estate investment scope if you don’t have satisfied tenants in your first group of buildings.
Establish your system and workflow
You’ll have the opportunity to establish your operational strategies and systems while you’re functioning in a target area you’re familiar with. • You’ll learn how to cut operating costs while increasing revenue in this setting, which will help you refine your property management skills.
Minimize risk and avoid surprises
There are hazards in every industry. While you’ll eventually want to diversify your assets, starting with a single, well-defined target region can assist you in learning how to foresee risk in a certain sub-market. When you concentrate on a narrow target area, you’ll quickly discover potential real estate surprises.
Replicate your success
Once you have developed a successful investment plan with one property in your desired location, it’s simple to pick up another and follow the same steps. You understand how sub-market variables affect the real estate market in your target area. Collect that information and apply it to your next investment to make it even better.
Discover How To Buy Unlimited Rental Properties With This Step By Step Guide
How do you choose a target area?
Choosing a target area for your initial investments can be difficult. You’ll need to think about more than just location when selecting a target area. Consider things like the type of asset you want to buy and the income bracket your rental properties are aimed at, as well as other factors affecting your capacity to meet your investment goals.
Set parameters around macro- and micro-variable aspects to define your target area. This will assist you in narrowing down a geographical sub-market as well as the asset type you’re interested in.
Identifying a geographically relevant target region
The geographical location of your target area is the most critical macro-variable aspect to consider. This will have a significant impact on the amount of capital required to complete your project, as well as the rate at which your asset will appreciate and the rentals you may charge.
To begin, decide on your primary market. This should be a city or a part of a larger metropolitan area where you want to invest. Establish a more localized area as your key market rather than simply saying “Toronto.” You can infer, for example, that York is your primary market, even though it is a small part of Toronto.
It’s time to zero in on a particular neighbourhood or ZIP code once you’ve chosen your primary market. Consider making Mount Dennis your geographical target area if you determine York is your primary market. It’s all about focusing.
Consider the tax-assessed valuations of properties in your target market when choosing a geographic area. While this number may not accurately reflect the home’s true market worth, it will offer you a decent understanding of the micro-appreciation market’s rate and current state.
It would be best if you also looked into crime statistics in your selected neighbourhood. High crime rates and low local school performance will make it more difficult for you to get your desired return. For the sake of property management convenience, try to buy homes that are within a comfortable driving distance of your own house.
The sort of asset you intend to buy is another macro-variable to consider. If you’re considering buying a single-family house, you’ll probably save money on operating costs and have a lower entry barrier. Buying apartment buildings, on the other hand, may yield superior overall profits.
Micro-variables must be taken into account
You’ll need to set micro-variables for each property. For example, you might prefer a building with brick siding to one with vinyl siding. Establishing rules for micro-variables can help you set yourself up to buy an asset you’ll be happy to own and manage.
The type of foundation, the age and style of the building’s heating system, and the property’s maintenance or repair needs are all common micro-variables to consider. Personal preferences and the level of risk your investment strategy permits you to take are the essential micro-variables.
As an investor, establishing a target location allows you to more precisely discover properties that match your objectives and develop a property management strategy that maximizes cash flow and passive income. Conduct market research and look into the micro-and macro-drivers that are driving such markets. You will become an expert in your industry over time, and you will be ready to take on more significant and more rewarding investment challenges in other areas!
Did you know mortgage lenders have their own target areas where they will and won’t finance investment properties? Click the link below to book a free strategy call to learn more about what and where lenders will and won’t finance.