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Investing in real estate can sound like a great idea in theory. The idea of a passive income stream coupled with an appreciating asset is certainly tantalizing. In practice, the trick lies in finding the right properties to invest in.
To help you in your search, we’ve compiled five proven methods for how to find investment properties. We’ll also go over what to look for in an investment property and your different financing options once you find the right place.
1. Find an Investment Property With a Real Estate Agent
There may be no better place to start your investment search than reaching out to a professional. Real estate agents live and breathe the housing market. They can be especially helpful if you’re looking to buy property somewhere you don’t live or that’s far away.
Using a real estate agent will give you access to the multiple listing service (MLS) that they use. This online database should include every property that’s officially listed, and you’ll get the advantage of seeing properties that are coming soon.
You will also be able to leverage the real estate agent’s professional network. Depending on how robust that network is, you might hear about things like pocket listings and other technically off-market deals.
Once you find the property, the real estate agent will be able to help you with the offer and negotiation process so that you don’t overpay or miss out on the property by not making a competitive offer.
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2. Search For Investment Properties Online
Whether you decide to use a real estate agent or not, you should also do some looking on your own. The internet is the most efficient way to review a lot of properties quickly. Here are some places to look:
- Real estate listing websites: (Think Zillow, Trulia, etc.) These types of sites usually allow you to set filters based on location, price and other criteria. They also typically include the contact information for the listing agent so that you can reach out to them directly for more information about the property.
- Local government websites: The local government website can include listings specifically for properties that have been foreclosed or are scheduled for auction. We’ll expand more on that in the next section, but remember to include these sites as part of your online search.
- Local real estate agent websites: It’s worth looking through the websites of local real estate agents. They can include exclusive property listings that won’t show up on bigger aggregator sites.
The goal isn’t necessarily to position yourself to buy a house sight unseen, but rather to compile a short list of houses you want to take a closer look at. Ideally, you’ll be able to see them in person before deciding if you want to put an offer in or not.
3. Hunt For Auctions and Foreclosures
We’ve listed these together because properties that get foreclosed have a tendency to wind up at auction. This can be a tremendous opportunity to purchase a home for less than market value if things shake out the right way.
Lenders are usually motivated to sell foreclosed properties quickly in order to mitigate their losses. Also, there can be less competition for these properties because they don’t always end up on the aggregate listing websites.
The U.S. Department of Housing and Urban Development (HUD) has a website that includes many foreclosed homes for sale. You should also check your local government websites to find these properties. Your real estate agent will also be able to help you find them.
A word of warning: homes that are sold at auction are usually sold as-is. That means that you might not have a chance to conduct a home inspection before bidding on the property. It’s best to include a healthy budget for repairs when considering these types of investment properties.
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4. Reach Out To Real Estate Wholesalers
An underrated option when it comes to real estate investing is to let someone else find the property for you.
Real estate wholesalers obtain contracts on properties for sale and then look for investors. You’ll pay them a finder’s fee, but if you have the funds, you can save a lot of time and frustration by not putting in the legwork yourself.
You’ll also get access to exclusive properties, as wholesale properties usually don’t show up on either the big aggregate listing websites or the MLS systems used by real estate agents.
While you can find wholesalers online – through social media and searches like “real estate wholesalers near me” – you can also take advantage of word of mouth. Wholesalers are always actively looking for buyers, so putting the word out that you’re open to this arrangement to a few real estate professionals (think lenders and agents) can get your name circulating in the right circles.
5. Physically Look For Investment Properties
It’s not sexy. But if you’re looking for a property, don’t underestimate the power of getting into your vehicle and physically driving through the neighborhoods that you’re interested in.
If you find a distressed property or a property that looks abandoned, following up with your local records office can be a great way to get ahead of your competition. You might be able to purchase the property via short sale without waiting for the foreclosure process.
There’s also the possibility of finding properties for sale by owner (FSBO) that might not be listed yet, or potentially convincing an owner that wasn’t quite ready to sell that your offer is worth taking.
What To Look For In an Investment Property
Once you’ve narrowed down your pool of potential investment properties, here are some things to consider to help you rank your options, and ideally pick the best property for your investment goals.
What is the market outlook for the neighborhood? Are property values keeping pace with the rest of the area, or are you looking in a particularly hot or cold area? Also, be sure to consider other elements related to the location. For example, are they putting in a shopping center close by? All of these factors can impact how the investment fares over time.
Even if you have to submit an offer before conducting a home inspection, we still recommend getting one eventually to fully understand what repairs need to be made. If there are serious issues like visible cracks in the foundation, by the time you make the necessary repairs you might not be getting the investment deal you thought.
Do as much due diligence as you can ahead of time and be sure to factor in a repair budget to your costs when looking at any investment property.
Does the home currently have tenants? Is it close to downtown or another desirable area? Make sure to evaluate the rental potential in case you’re interested in earning passive income on the property. What is the market rate? How much can you realistically charge in rent?
There are additional responsibilities that come with being a landlord, but for many, the potential for rental income is one of the main draws of an investment property.
Zoning and other considerations
Purchasing a historic home comes with a lot of restrictions. Or, maybe you’re interested in a house in a flood zone which will require flood insurance. Don’t forget to include these special circumstances in your decision-making process. Otherwise, you might find yourself unable to complete a renovation that you thought was critical to the success of the property.
How To Finance Investment Properties
Depending on your individual financial circumstances, you have multiple mortgage options when it comes to investment properties:
- Conventional loans: You’ll need to make a larger down payment to qualify for a conventional loan for an investment property, but conventional loans are still a great option for those who either don’t want to or don’t have the funds for a cash purchase.
- Federal Housing Administration (FHA) loan: If you’re looking at a multifamily unit and you plan to live in one of the units, you can apply for an FHA loan to finance the purchase.
- Home equity loan: You can use a home equity loan to purchase another home. Depending on how much equity you have, tapping into it could allow you to purchase a condo outright, or it could be a sizable down payment that removes the hassle of mortgage insurance for your investment property.
Final Thoughts on How To Find Investment Properties
Even if you only end up purchasing one investment property, we still advise looking through all of the channels available to you. If you try all five of the strategies for finding investment properties, you’ll put yourself in a good position to discover your next great investment.
The Short Version
- Using a real estate agent is a great way to find investment properties. Agents can also help with what comes next, like structuring a competitive offer and negotiating with the seller
- When searching online, remember to review local government websites in addition to aggregate listing sites, as they can include foreclosed properties and upcoming auctions
- Don’t underestimate the value of physically driving around neighborhoods. You can find homes for sale by owner and disrepaired homes that owners might be open to selling