By Marissa Sainz, July 8, 2021
Property investment has been front and center of our minds here in the Sainz household these past few years. From building our own investment property, renting out our first home, and keeping a close eye on new markets, I have been putting my knowledge of the real estate industry to work in finding us great opportunities to stretch our dollar and prepare for our future. A lot of my clients are also in a similar time in their lives, and thus I find myself having many conversations about real estate investing on a weekly basis. So, I’ve started wrapping in need-to-know information on my website and social media to get YOU prepared to invest in real estate!
The market is always changing, which makes investing in real estate a consistent learning opportunity. There are many factors to keep in mind when determining whether a property will make an ideal investment. From location to appreciation, there are some critical factors to keep in mind when looking for a property that will yield the highest return!
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Location and “Rentability”
You’ve found a property you think you love. Before you get too excited, you’ll need to do your due diligence. Step one is to consider where the property is located, how the condition of the home compares to those surrounding it, and what the surrounding properties are currently being rented for.
Location is everything! Analyze the distance to needed amenities (grocery stores, restaurants, communal hubs), nearby parks, access to public transportation, and the house’s walkscore. Consider the “social factor” of the property — how far is the property from other homes, schools, and city centers? Look for a property that is well-connected, easily accessible, and has some draw — potentially in a neighborhood that has been getting increasing attention in recent years.
You may find a property with loads of potential, but if the surrounding properties are rundown and unmaintained, the overall value of the property lessens. You can repair, renovate, and design your property to the nines, but the state of the neighborhood may remain the same. Purchasing a property in the wrong neighborhood may result in a decrease in property value over time.
After reviewing these factors, narrow down your analysis with a neighborhood rating algorithm and connect with a real estate professional, who can collect a comparative market analysis (CMA). A CMA is used to analyze a property’s financial performance and the potential for a max return!
2. Improvement and Repair Considerations
On the hunt for an investment property, a massive consideration is the cost of repairs and renovations. Upon purchasing a home, before undergoing any design renovations, the top priority is to take care of essential repairs — plumbing, heating, electrical, and HVAC systems. These repairs are critical to comfort, livability, and will increase the value of your property. Depending on the severity of the maintenance and/or repairs, these services can cost from $110-$6,000 for each individual system.
Beyond essential repairs, consider design renovations that will increase the property value! Renovations for max return on your investment don’t have to break the bank. Painting kitchen cabinets, exterior paint, kitchen/bathroom hardware, and landscaping will help the property stand out, without going over budget. Maximize on design updates that are low-cost and high-return!
Tax deductions
Whether the renovations made on your property are considered repairs or improvements is important. Under IRS regulations, you can deduct 100% of a “repair” cost in a single year, while “improvement” deductions are depreciated over 27.5 years. As an example, if the kitchen tiling is damaged, and you spend $1,100 on repairing the original flooring, this is considered a repair cost. You are able to deduct $1,100 when tax season rolls around. However, if you choose to replace the damaged tiling with hardwood flooring, tax deductions of the cost will be depreciated by 3.636% over a max of 27.5 years.
So, what specifically classifies as an “improvement”? The IRS considers renovations to be improvements that fall under “betterment”, “adaptation”, or “restoration”:
- Betterment – repairing a defect and sequentially installing additional material to the property. Our hardwood example above falls in this category — additional material (hardwood) replaced the damaged tile flooring.
- Adaptation – renovating a property to a different use than was originally intended.
- Restoration – renovating a property in disrepair back to the original operating condition, often replacing a major structural component.
This shouldn’t deter you from making improvements to your future investment property, but is important to keep in mind if you are relying on a lump-sum refund. For all updated regulations, check out the IRS latest updates and FAQ on tangible property regulations.
3. Opportunity for Appreciation
If you’re eager to jump into property investing, you likely understand the concept of property appreciation — how much the value of a property increases (or, is expected to increase) over time. Portland is in a great position for appreciation right now! The national average appreciation rate is between 3%-5% and is determined by the demand for homes. The fewer homes on the market and the more interested buyers, the appreciation rate is driven up.
Beyond the state of the market, these are the factors to keep in mind when looking for a house with the best chance of a high appreciation:
- Lot vs. home square footage – As the city’s population density continues to grow, the value of land increases. There is a high demand for a large yard and distance between neighboring houses.
- Location – Consider nearby schools, proximity to amenities, recent changes in crime rate, and walkscore.
- Population growth – People are flocking to Portland! And as long as our community continues to grow, the demand and value of our city’s properties are expected to appreciate.
- Age and condition – Portland is home to a plethora of historic homes. Before investing in an older home, consider the cost of modern updates (appliances, plumbing, energy efficiency, etc.).
Property Appreciation Rates in Portland 2021 (Forecasted)
The Portland Metro appreciation forecast for the next 12 months shows an expected increase of 18.3% (compared to 15.1% in the past year). Multnomah County specifically is expected to increase 7.5% this year, a decrease from last year’s appreciation value of 14.4%. Especially in the current market, with a high demand for homes and a severe lack of listed properties, the average monthly appreciation rate sits at 5.3%. If you are able to snag a property, now is the time! A higher appreciation equals more return on your investment!
Portland is a hot seller’s market right now, and market analysis doesn’t show any signs of slowing in the next few years. As you hunt for the perfect investment property, keep these tips in the front of your mind:
- Location, location, location!
- As a real estate professional to conduct a comparative market analysis — reach out! I’m happy to help.
- Budget for essential repairs and maintenance checks
- Maximize on low-cost, high-return design updates
- Big lot = big return!
- Consider the cost of necessary updates and repairs of older homes in comparison to the home’s market value.
We (my husband and I) have just built our own investment property from the ground up (you can look back on our adventure there at the Instagram hashtag #thehousethatbrentbuilt. We moved into our new property that has an attached ADU that we rent out to long-term renters, and we now rent our former property as well. We are constantly on the prowl for new investment opportunities for our family and I have plenty of tips from my expertise in real estate to help you do the same. Stay in touch on my Instagram for investment tips and opportunities at @marissasainz.
Happy investing!
Marissa Sainz
Broker | Earth Advantage | OR
She/Her
Whether you want to live in a hip Pearl District condo or a unique east side bungalow I am here to help you find the perfect home.
The Pearl District and the close in surrounding neighborhoods are exciting and evolving areas and where I focus my business.
It is important in our changing real estate world, where location is so vital to home buyers, to work with a neighborhood expert. We all want to live near our local grocery store and within walking distance of our favorite coffee spot, restaurants and parks.
I am here to guide buyers and sellers through the process every step of the way, if you are a first time home buyer searching for the perfect starter home or looking to move as your family and lifestyle change.
Marissa earned a degree in finance with a concentration in real estate from The University of Texas at Austin. Before coming to residential real estate in Portland Marissa worked for both a national and local commercial real estate firm. Around town Marissa is involved with the Women in Insurance and Financial Services Portland chapter as well as the Women's Council of REALTORS®.
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- T: 512-736-6111
- marissa@livingroomre.com
