Top 10 Things To Look For When Buying Rental Property
Most people look into buying rental property, because they want a passive investment or passive income. Usually, that is not the case! However, you can get close to passive income dreams, which is why many people don’t mind dropping a lot of cash up front to get into the game of buying rental property.
However, you make money when you buy, not when you sell. The truth is, buying rental property that’s worth it, can prove to be a challenge.
So how do you choose a rental property that’s sure to give you your money’s worth?
Let’s go over the top 10 things to look for when buying rental properties:
- Rental Rates – The rental income that you obtain every month must be able to cover your monthly amortization, maintenance expenses, property taxes and more. Otherwise, your rental property could turn into a losing investment. One way to determine whether you’ll be able to cover your expenses is to check the rental rates within the area. Look for similar rental properties and find out how much they’re charging. With a little research you’ll be able to come up with an approximate figure for a realistic rental amount to charge to your tenants.
- Property Tax – The figures for property taxes is not uniform for all areas. Determining how much you’ll need to pay for taxes ahead of time will prevent having to increase your rates just to cover up the amount. A good neighborhood that shows promise for long term rentals may be worth it even if the area has high property taxes. This information can be obtained at the town’s assessment office.
- Neighborhood – The type of neighborhood where you’ll get your rental property determines what type of tenants you’re most likely to have. It also gives you an idea whether you’ll be experiencing vacancies or not. For example, if your property is near a university, then your market is most likely students. As a result, you could have vacancies during the semester breaks or summers.
- Employment – Rental properties that are close to big companies or any other institution that offers employment will churn up more tenants than a quiet and rural area. Keep updated with the local news and watch out for announcements on soon to open companies and establishments then quickly purchase lots surrounding the area.
- Amenities – Tenants are more likely to flock to an area where everything is accessible and convenient for them. Check the surroundings for amenities such as access to public transportation, groceries, malls, movie theaters and the like. This could be a strong selling point that could keep your property in full occupancy.
- Crime – No one wants to live in an area where the crime rate is high. Most likely the prices of properties could be low in such a place, but even if you get a property on a bargain, you could still end up on the losing end if nobody wants to rent out your space. You can visit the police or public library for crime statistics in different neighborhoods instead of relying on what the property seller has to say.
- Competition – An area might have a market but what happens when there’s too much competition? Chances are rental rates will go down when supply exceeds demand. Conduct a survey on how many rental properties are within the vicinity and ask about vacancies. This will give you an idea whether a certain area is already saturated with rental properties or if they could use more.
- Natural Disasters – It’s always best to check up on the history of an area. Is it located in an area prone to flooding? Or is it on an earthquake belt or a hurricane path? This can result in high insurance payments, and not to mention, the occasional disaster.
- Pests – One thing that can really turn off a tenant is the presence of pests. A unit may look fine until you realize there’s a bed bug infestation. Mouse holes can also indicate the presence of rats. Quality pest control can be an added expense plus dirty surroundings will keep those pests coming. Steer clear from unsanitary areas since this can affect your property as well.
- Repairs – Rental properties that are in need of repairs can also come with a lower price tag. However, before sealing the deal it’s best to have an expert take a look at the damage and give a professional estimate as to how much you’ll be spending in repairs. Also keep in mind that renovation time could mean a month or two without rental income so make sure you’ve got extra cash for amortization.
When buying rental properties, get ready to under go a lot of research, scrutiny, and foresight . However, when you get the the deal done, the effort is all worth it. Before buying a rental property that might be more trouble than it’s worth, be sure to check out the features listed above.
If you have purchased rental property before, what advice would you give to a wannabe landlord?