Investing in Real Estate? 6 Properties That Will Earn You The Most

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By Leonard Baron

If you're interested in improving your lot in life -- no pun intended -- by becoming a property mogul and investing your hard-earned capital into income-producing properties, there are some general guiding principles that should increase your chances of earning wealth.

One of the better ways to improve your wealth is to reduce your risk on the properties you purchase. This will allow you to buy lower-risk real estate, which hopefully will earn a fair amount of wealth for you over time. Go for these:

1. Properties in very good shape.

Too many people buy fixer-uppers thinking they'll add value by doing a renovation. Then they get mired in a much more expensive and time-consuming property than they ever expected. More money into the property means lower investment returns for you and less wealth-building than you expected. Skip fixers and instead buy properties that are in as good shape as possible, which should get those rental checks coming into your bank account in as short a period as possible.

2. Properties in moderately priced areas with good cash flows.

Real estate is all about location, location, location! The properties in the best locations (think beach areas, downtown, wealthy enclaves) generally have very negative cash flows, so those are the location, location, locations you want to avoid. The moderately priced properties in working-class areas are the real gems; they generally have the boring locations, but much better cash flows. Of course pencil out any deal with conservative rents and expenses, and go for beginning year cash on cash return of at least 4 to 6 percent, based on your conservative estimates.

3. Communities with HOAs in good financial, legal, operational shape.

There are many, many landmines in buying properties in common interest developments. And you aren't just buying your property; you're buying into a larger entity called the homeowners association (HOA). And if it is in financial, legal or operational trouble, you pay the bills. Make sure to do your due diligence on this -- and it's a lot of hard work to do it properly. Learn what you need to look at way before you go into escrow.

4. Properties that come with decent credit quality tenants in place.

There is nothing better than buying a property with a decent tenant already in place. You get the security deposit and pro-rated rent, and you don't have to go in and clean, paint, update or fix too many things in the unit. If you buy properties in areas that have decent credit quality tenants, that's hopefully the type of tenant you will inherit. Also take a look at the current tenant's lease, credit application and credit report, if you can, before you make the decision to purchase the property.

5. Properties in low vacancy areas.

Vacant units get robbed, incur vandalism and don't have any rent coming in to cover the bills. If you buy in places with really high vacancy, it might be months or years before you get the property rented out at a fair rental rate. So really think through buying properties in areas with many unoccupied units. Drive around at dinner time: No lights in a lot of neighborhood houses means no one is residing there, and you shouldn't, either.

6. Properties you will own a long time.

The most important factor in real estate investment property is to own it for a long time -- in fact, forever is the optimal ownership horizon. So do your due diligence and buy quality properties that you really like for all the right reasons, and plan to own them for good. That's your best bet to earn wealth on real estate.

If you buy properties with ALL the above characteristics, that will greatly increase the chances you will add wealth to your nest egg from your real estate ownership. So try to acquire properties that have as many of the above good qualities as possible, and skip the ones that don't make the cut!

See more on Zillow:
Buying? Use This Checklist to Avoid Surprises
Investing in Real Estate -- What is a Good Deal?
What to Review in HOA Documents When Buying

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Investing in Real Estate? 6 Properties That Will Earn You The Most

Fifth-best city: Atlanta
Difference between rent and mortgage: 182.6%

DuBois says "Hotlanta" offers investors the potential of good rental income and solid capital appreciation.

That's because the 5.3 million-population metro area's real estate market -- which tumbled during the housing bust -- appears to be rebounding. Median Atlanta-area list prices on Realtor.com rose 9.8% over the past year to hit $174,900.

"Atlanta was hit hard by foreclosures, but prices are starting to appreciate there and I think we're seeing some stability," DuBois says.

Read more at TheStreet.com.

Find homes for sale and for rent in your area.


Photo: Flickr/Brokentaco

Fourth-best city: Princeton, N.J.
Difference between rent and mortgage: 209.8%

Rents in the home of 7,900-student Princeton University average $2,056 a month -- more than double the $980 monthly mortgage bill on a typical home in the area.

Besides hosting a world-famous school, Princeton serves as headquarters for Berlitz, the Educational Testing Service and other large local employers. Bristol-Myers Squibb (BMY), Dow Jones and other big firms also have significant operations in the area.

Read more at TheStreet.com.

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Photo: Flickr/atramos

Third-best city: Pittsburgh
Difference between rent and mortgage: 215.8%

The Steel City and surrounding communities are home to more than a dozen schools, from the 28,800-student University of Pittsburgh to 12,100-pupil Carnegie-Mellon University.

Buyers will also find the lowest home prices and monthly mortgage bills of any town on Realtor.com's list.

The median Pittsburgh home listed for just $140,000 as of July, with an estimated monthly mortgage payment of $520. That's less than half the average $1,122 asking rent investors can expect from tenants.

Read more at TheStreet.com.

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Photo: Flickr/kla4067

Second-best city: Chicago
Difference between rent and mortgage: 226.4%

America's "Second City" places second on Realtor.com's list because of high average asking rents ($1,630), low median mortgage bills ($720) and its many universities.

Several large schools call Chicago home, including Northwestern University (20,000 enrollees), the University of Chicago (12,300 students) and the Illinois Institute of Technology (7,800 pupils).

DuBois adds that 9.8 million-population Chicago is also America's third-largest metro area, "so you've got a large pool of potential renters."

Read more at TheStreet.com.

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Photo: Flickr/LukeGordon1

Best city: Boston
Difference between rent and mortgage: 248.7%

Boston
is perhaps America's biggest college town, with more than 100 schools and more than 250,000 students.

Best known as the home of Cambridge's Harvard University (19,900 students) and the Massachusetts Institute of Technology (10,900 enrollees), Beantown also hosts Boston University (32,400 pupils), Northeastern University (19,700 attendees) and other large schools.

Read more at TheStreet.com.

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Photo: Flickr/jeffgunn

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