A homebuyer looks at a property with an eye towards her family’s needs, her proximity to work, the quality of its neighborhood educational system, her aesthetic choices.
An investor looks at a property with an eye towards making a profit. Helping your client determine her investment goals helps you as her agent find her the perfect property.
If your client’s goal is to maximize her monthly earning potential, you will show her a property that produces cash flow for her…a property with low monthly costs and high monthly rental income. If your client’s goal is to maximize the appreciation of her investment, you will show her a property with the highest valued growth curve…a property that can potentially appreciate an average of 5.4% or more annually.
Obviously, there are no guarantees associated with either type of investment and there are pros and cons to each. Here are just two:
- Rental income property tends to be more consistently predictable and less risky than property predicted to appreciate at some future time.
- Property predicted to appreciate could come with a higher potential to earn a long-term yield.
To help determine which type of property investment your client may best suit her needs, consider asking her these questions:
- What is your main goal? Do you want an income stream of a long-term play to protect your future and or potential retirement?
- How long do you plan on being an investor? A short-term investor is more likely to be interested in generating cash flow through rental income. A long-term investor is more likely to be interested in a property predicted to appreciate over a period of years.
- How much work are you willing to do? Properties that appreciate over time need regular maintenance over time. Properties that earn more rental income tend to need additional work…those properties usually do not come “ready to go.”
- How much money are you willing to invest upfront? To maximize cash flow, your client will likely need to pay more upfront to reduce monthly expenses. If looking to “steal” a property during a buyer’s market, a smaller down payment will likely make more sense as the return may appreciate more than she’d pay in interest on a loan for a larger down payment.
- How much risk can you tolerate? A stable rental property that produces a steady cash flow is less risky than a property to buy with the intention of flipping it.
- If your client wants to live off the “new income” from the property, a cash flow investment is the one to consider.
- Is your client interested in investing in multiple properties? Your client may want to hedge her bets and invest in one cash flow property and one property with appreciation potential.
The more clear you can help your client become in terms of her investment goals, the more clear her definition of a perfect property. And the more you become your client’s definition of her perfect real estate agent.