7 Things to Look for When Investing in Real Estate

Jen Marley Bright  |  April 23, 2023

7 Things to Look for When Investing in Real Estate

Long-term investments like vacation homes and short-term investments like home flipping are great ways to profit when done correctly. An investment’s success depends on factors like buyer and renter interest, property type, and location. When searching for investment properties for sale in Morgan Hill, CA, here are seven things to look for.

1. Great location

Location has the power to make or break a property’s value. Better locations near plentiful amenities will attract more high-quality renters, increase the property's value over time, and make a property easier to sell later. On the one hand, investment properties for vacationers should be nearby entertainment and shopping centers, restaurants, or outdoor recreation. On the other hand, properties for long-term renters should be nearby public transit, schools, and essential services.

Investors should be attentive to an area’s future development. Although a neighborhood may seem peaceful or inviting, projects like the construction of buildings or roads can cause noise, slow traffic, or obscure views. Ask a local agent about plans or conduct research from local sources like a city website or city hall before investing.

Areas like Morgan Hill feature many amenities that make properties ideal for investors. Downtown Morgan Hill offers an array of restaurants, local boutiques, and public art displays. This town also has a lively wine scene, endless trails at spots like Coyote Valley Open Space Preserve and Henry W. Coe State Park, and elaborate recreation complexes like the Outdoor Sports Center.

2. A property in good condition

A worthwhile investment property should be in good condition. Those planning on home flipping should complete their due diligence and always order a home inspection before purchasing the property. Many major home issues can only be seen with the right tools and experience. Common home issues in California properties include roof damage, water damage like rusting or cracks, and foundational issues.

Although minor issues aren’t a significant concern when investing in real estate, large issues with a home can make the endeavor unprofitable or cause even more dire consequences. Investors should do the math to check that the combined cost of purchasing a property and needed repairs or renovations is less than the property's resale price.

3. Appreciation potential

Those interested in Morgan Hill real estate should also consider home appreciation potential. With long-term investments like vacation properties, profits are gained less by fixing up the property and more by the growing scarcity in a desirable area. Investors who buy in highly appreciating areas will have to pay more for the initial purchase.

In Morgan Hill, the median price for a single-family residence is about $1.4 million, which is 11.3% less than last year. Investors should remember that this decline reflects normalizing market trends, so now may be a good time to buy.

4. Property tax rate

Another thing to consider for long-term investors looking for a duplex for sale in Morgan Hill is the impact of property taxes on profits. High property taxes can make it challenging to sell a property and maintain a steady stream of tenants. Conversely, some of the most appealing areas to vacationers and renters are cities with high property taxes. In Santa Clara County cities like Morgan Hill, homeowners pay annual property taxes equal to 0.67% of their property’s assessed fair market value.

5. Other important metrics

It’s best to enter an investment with a sound financial plan. Here are a few other important metrics to monitor when investing in a property.

  • Return on investment: Called ROI for short, this measurement predicts how much of a profit an investor might make on their property by researching data from similar homes in the area. To calculate ROI, an investor subtracts the investment cost from the projected investment gain, then divides the difference by the investment cost.
  • Internal rate of return: Also known as IRR, this metric reconfigures a property’s future value in a dollar’s current worth. In other words, it shows investors what the property would be priced at today when jumping forwards in time. IRR measures an annual growth rate, while ROI measures total growth.
  • Gross rent multiplier: The GRM helps investors estimate a property’s rental rate in relation to the property's cost. This is easily calculated by dividing a property’s fair market value by its gross rental income. To pay off a property, aim for GRMs between four and seven.

6. Steady rental demand

Those renting out their Morgan Hill real estate to vacationers or long-term residents should monitor rental demand in the area. Having a steady stream of renters is crucial to paying back investments and making a stable profit to pay for the expenses of owning a property. In Morgan Hill, 72.6% of the population owns their home. This may make it difficult for investors to earn a profit.

7. Low-maintenance property

The best investment properties are ones that require little maintenance. A property that doesn’t need to be constantly fixed attracts long-term renters for its reliability, making it easier to profit. Investors also save time and resources traveling to a property, purchasing the materials necessary to fix it, or hiring the labor to get issues resolved quickly.

Ready to invest in Morgan Hill?

A sound investment property is a home in good condition located in an area with easily accessible services and amenities. Investors should always research an investment’s viability by monitoring the location’s future, looking up property taxes, and understanding renter demand.

When you’re ready to invest in Morgan Hill, partner with a local and experienced agent like Jen Marley. In her career, Jen has closed on hundreds of residential and investment purchases in places like Los Gatos, Morgan Hill, and San Jose. By working with Jen, you guarantee a smooth and successful transaction, whether buying or selling. Reach Jen at your convenience and get your investment strategy moving forward.

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If you are a buyer or seller who lives in Santa Clara, San Mateo, Santa Cruz, Sacramento or Placer County or if you are looking to relocate, Jen would be honored to assist you. Jen has a global referral network through Coldwell Banker Realty and she can connect you with the best local agent anywhere nationwide.