When it comes to selecting an investment property, there are a few issues that every landlord must take into account. No matter how wonderful a property is or how eager you are to invest, never make a property investment without carefully evaluating the following items on your property investment checklist.

1. Calculate your profitability.
Although determining the likely profitability of an investment property may seem like a given, you might be surprised how many investors find themselves in a losing situation simply because they fail to do the math. Before buying an investment property at any price point, be sure you carefully determine how much rental income you are likely to generate on an annual basis. Weigh this against not only your mortgage and property taxes, but also all of the other costs that are likely to occur over the course of a year, such as advertising vacancies and doing general repairs and maintenance.

When calculating these costs, be conservative when estimating income and err towards over-estimating your outgoing expenses. You want to make sure you have enough wiggle room in your profit margins to afford your investment property payments no matter what unforeseen events may unfold in a given year.

About.com’s real estate business page offers some great calculation tools that will help you calculate your risk based on several different variables.

2. Get inside renters’ minds.
Sure, you’re the one who’s purchasing the investment property but never forget that you are purchasing it for the purpose of renting it out to tenants. Which means that while you obviously have to make a pragmatic investment decision, you also have to think like a renter. Take a long hard look at exactly what sort of properties seem to be the most desirable in your area. Evaluate things like number of bedrooms, location, square footage, and other amenities. Knowing what renters want ahead of time helps guarantee that you won’t struggle to fill vacancies or be forced to settle for less desirable tenants later down the line.

3. Think long-term.
Will this property still be good a few years down the line? Remember, when it comes to investments, you’re not only investing in your financial well-being—you’re also investing in your future. Which is why it’s so important to take a good, hard look at long-term trends in areas you are considering. Look at city and county records to see how the neighborhood you’re looking at buying into is trending. Have properties been increasing or decreasing in value over the past five or ten years? How about crime rates? Has the demographic remained stable over the past decade or has it evolved (for instance, are residents generally shifting from families to young, single occupants)?

While no one can predict the future, much can be learned from the past. Make sure that you know exactly what direction the neighborhood you’re thinking about buying is headed.

Checking these few items off your Property Investment Checklist can make all the difference between a good investment and a bad one.

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Better safe than sorry. Sure, it’s trite … but it’s also true. Every property manager should consider a well thought out emergency plan to be an essential part of his property management duties. In an ideal world you will, of course, never have to use it. However, should you ever find yourself in an emergency situation, an emergency plan may literally mean the difference between life and death for your tenants and between a property making it through an emergency episode intact or not.

What kind of plan do I need?
Begin by carefully thinking through worst-case scenarios that could potentially strike your property. Obviously, all properties should have a fire escape plan, but you may be subject to other natural disasters depending upon your location. If you are located in California, for example, you may want to have a plan in place should an earthquake occur. If you live in the mid-West, you’ll want to have a plan of action in case of tornadoes; if you’re in the South, plan ahead in case of a hurricane. Also bear in mind that even the most prepared person can’t foresee all potential scenarios, so it may also be wise to have a general evacuation plan on-hand to prepare for miscellaneous events that could put tenants and your property in danger.

What type of information should my plan include?
Every property’s emergency plan will vary dependent upon the size and layout of the property, its location, the landscape of the area around it, and the type of hazard the plan is designed to guard against. There are, however, a few elements every plan should include, including:

• Escape/evacuation route
• Communications plan
• Utility shut-off plan
• Special needs (for handicap and elderly tenants, etc.)
• Dealing with pets
• Safety resources (list of emergency numbers, individuals who can administer CPR, etc.)

Disseminate information.
No matter how well thought out your emergency plans are, they won’t do you any good if tenants and other property management personnel are not aware that they exist. Make sure that all evacuation routes are clearly posted throughout the building in multiple places; the entrance to stairwells and elevators is always a good place to display evacuation routes. In addition to posting this information, be proactive by providing printouts of such maps and a listing of emergency procedures in the lease packet at move-in. You may also want to redistribute this information on an annual basis, whether that’s at the beginning of every year or to each tenant on an annual basis when their lease renews. Annual distribution will also provide you with a built-in opportunity to update emergency numbers and review procedures to make sure they remain optimal and address any altered circumstances (such as a remodel).

Protect your property.
In case of an emergency, your top priority is making sure that all tenants are rapidly removed from harm’s way. Unfortunately, in certain scenarios, it’s simply not possible to avoid property damage or destruction. So the most surefire way to protect your property is to make sure that it is fully insured against all types of damage, however it may occur. FEMA recommends that all property owners carefully research the Insurance Information Institute to determine what kinds of insurance will offer the most protection.

Also be sure to strongly recommend (or even require) that all tenants carry renters insurance. Many renters assume their personal property is covered under the building plan, which is not the case. Let them know upon lease signing that they are responsible for covering their own personal property and that renters insurance plans can be found through most major insurance companies at an affordable rate.

Creating an emergency plan can be overwhelming. You should always feel free to consult with city engineers and planning or zoning administrators, all of whom will be able to advise you specifically on what sort of disasters you should be guarding against. They can also give you professional tips on how to protect your property and its tenants from potential threats. Also, be sure to visit FEMA’s website for tips on how you can protect your building from fire, flood, and earthquake hazards ahead of time; their Are You Ready guide to emergency preparation is a resource every property manager should have on-hand.

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We’ve all heard it before (including in the previous blog post): Location, location, location. The more you know about a neighborhood, the better you can feel about your real estate investments and properties. Use the following links to hep organize your location search strategies.

• David Cowgill begins 5 Steps In Helping Choose an Investment Property Location with those three famous words: Location, location, location.
• Learn what residents are saying about local neighborhoods.  RentWiki.com is a user-generated service that provides social info about neighborhoods.
• Homebuying tips can also be applied to investment properties. About.com explains what homebuyers should look for in a location when searching for a new home.
• Learn more about an area’s demographics by searching the U.S. Census Bureas’ website for data.
• Test the public transportation in an area with Google Transit. Map the best routes from prospective investment properties to area landmarks.

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When it comes to locating the investment property that’s right for you, you’re shopping not only for the perfect property but also for the neighborhood that best suits your financial goals. In fact, before you even beginning to hone in on potential properties, it’s wise to first narrow your options by targeting a few specific neighborhoods in your desired area of purchase.

Begin by asking yourself what your ideal tenant pool looks like. Do you want to target the evergreen student population? If so, you’ll want to make sure that you’re looking in areas that offer easy access to nearby colleges and universities. Are you looking to cater to young professionals? Consider trendy or up-and-coming areas that are in close proximity to business districts and local restaurants and shops that will likely appeal to 20- and 30-somethings. If it’s families you’re after, narrow your search to quieter neighborhoods in desirable school districts.

Once you have the generalities out of the way, it’s time to drill down to some specifics that take both your current budget and your long-term investment goals into account.

Long-term prospects

Choosing just the right neighborhood requires that you are both a good historian and a good forecaster. Remember, this is an investment so you want to hedge your bets and utilize any resource possible to ensure that this neighborhood is not just a good fit today, but that it also will be five, ten, fifteen, or even twenty years down the line. Ask yourself these questions: Does this neighborhood have a good reputation? How has it changed over the past five or ten years? Have property values increased or decreased? Is this neighborhood up-and-coming? In decline? Stable?

Crime rate

Regardless of the tenant demographic you’re catering to, the safer a neighborhood is, the easier it will be to get good tenants in the door. Crime statistics are a matter of public record and can generally be found on your town or county’s local police website. If you are unable to identify this information online, give your local police department a call and they will be able to either provide you with the information you need or point you in the right direction.

Number of rentals vs. owner-occupied homes

It’s not uncommon for homeowners in primarily owner-occupied areas to view rental properties with some skepticism. While this doesn’t mean that you shouldn’t purchase in these areas, it does mean you should be aware that you may have to deal with some opposition should you purchase a rental in this sort of neighborhood. On the other hand, if you’re purchasing a property in an area that caters to renters, this may mean that there will be more competition when it comes to placing good tenants.

Parking

Particularly in urban areas, a general lack of parking can be a real headache for tenants. Be aware, however, that if you do locate a property that offers on-site parking in an area such as this, you will most likely be able to rent units at a higher rate. Likewise, in an area where parking can get sticky, residents are more likely to utilize public transportation than they may be in other scenarios—finding a property that offers easily accessible public transportation in this sort of instance can significantly increase the appeal of your units for potential tenants.

If you’re working with a real estate agent, chances are she will be able to provide much of this information for you. If you’re going it alone, though, don’t rely solely on the internet. While e-research is obviously a great way to narrow your search, first-hand experience is essential. Talk to friends and fellow landlords or homeowners in your target area and stroll or drive through the area on at various times of the day. Call local property management companies and look at rental sites to see what the average rent in these areas is. Because, as we all know, in the end it’s all about location, location, location.

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