Deciding to make a real estate investment for the first time is just the first of many decisions you’ll need to make. Do you plan to flip the property or hold onto it and rent it out? Are you looking for a house, apartment building, or condo? Would you prefer a property in a vacation area or residential area? Do you want to be a landlord or hire a property manager? There’s no end to the different types of investments you can make.

Sunset at Hearst Castle
Trey Ratcliff via Compfight

No matter what type of property you decide to invest in, there are certain things you should be looking for in order to make sure you get the best possible return on your investment. Here are some of the things you need to take into account before purchasing a property.

Location. It might be tempting to buy a vacation home in a beautiful and remote area, but there will be less demand for this type of property than for a property in a densely populated residential area near plenty of amenities. Ideally, you should be looking for properties in high-rent areas with low crime rates. Properties that are near amenities like parks, schools, and grocery stores will also appeal to renters.

Types of tenants. When choosing the location for your investment property, you also need to consider the types of tenants or buyers you want to attract. Again, vacation homes may pose a problem because you could end up renting them out only a few months a year. Properties near college campuses can also be risky, because renting to students means you will have a high turnover of tenants and may have vacancies when school is out for the summer. Generally speaking, families are the most stable tenants because they are usually looking to stay in one place for more than a year at a time. In addition to choosing a family-friendly neighborhood, you may want to look for multi-bedroom and multi-bathroom houses.

Job availability. Nobody wants a painfully long commute to work, so properties that are relatively close to major employers in your town and city will be appealing. Pay attention to developments in the city you want to invest in. For example, if a large business is moving their headquarters into town, you can expect an influx of employees who are going to want to live relatively close to the place they work.

Housing availability in the area. Before investing in a property, check out the neighborhood and see how many other homes are for sale. If there are a lot of listings, this may be a sign that there is little demand for housing in the area and that you may have trouble attracting renters or buyers. You should also find out what the average rent is in the neighborhood that you’re looking at so you can get a good sense of what you’ll reasonably be able to charge if you take on tenants.

Proximity to your own home. If you plan to be a landlord, you’ll want to look for a property that is reasonably close to your home so that you don’t have to go on an epic journey every time you need to meet with tenants. If you are interested in investing in a property farther away from you, you’ll most likely want to look into hiring a property manager.

Mortgage rates. You should never invest in a property if your only way of making the first few months of mortgage payments is rental income. Why? Because unexpected things happen, and if you don’t manage to rent out the property quickly, you’ll end up scrambling to come up with the money. Make sure you’ve saved up at least six months of mortgage payments and can also cover a property’s down payment before you invest in it.

Property taxes. Property taxes vary from location to location, so it’s important that you know exactly how much you’ll be paying on your investment. You may want to hire an accountant to talk you through the tax ramifications of an investment property, especially if you’ve never worked in real estate or made such a big investment before.

The most important thing you need to know about being a first-time real estate investor is that you have to thoroughly do your research and come up with a game plan. Make sure you have a good understanding of both your finances and the real estate market in the region your potential property is in. Consider sitting down and talking with real estate professionals or other experts in the real estate industry to learn more before making your first major investment.

Juliana Weiss-Roessler covers real estate and finance topics with her husband Josh for Right Residential. Follow her on Twitter, Google+, and Facebook.

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