Buying rental properties can be a great way to build your wealth. However, as in most real estate investments, it is sometimes difficult to know if you've found a good deal - especially the first time, and if you aren't working with a good property management company. Here are some things to look for to be sure that rental is a great investment.
Location. If traffic is heavier, rentals are easier to rent. A sign will often pull more response than an ad in the paper. If it is a nice locale, it will usually rent faster. This is also true of places close to amenities.
Numbers. Run the numbers. Get every last expense figured into your calculations, and be sure that you will have positive cash flow from the start.
High home prices. Look in towns with high home prices, as this creates rental demand. What do people do when they can't afford to buy? They rent.
Low maintenance buildings. Avoid cedar-shake roofs, and wood-sided buildings. Look beyond current expenses to how much maintenance the building will need. Low maintenance means less headaches and more profits.
Good rental history. Ask to see the rental history. Note how long residents are staying on average, and how well they pay on time.
Below market rents. Buying rental properties with below-market rents means you get to raise rents. Raising rents means you immediately raise the value, because rental property values are based on income.
Complies with zoning and fire codes. Have it inspected, and ask local officials if there are any problems.
Less than 20 years old. This is somewhat arbitrary, but if you limit your search to newer buildings, you will be less likely to have building code and maintenance problems.
Owner/manager that is out of state. These properties are often the best deals, because it is tough to manage a property from far away. An out of state seller is often more concerned with a quick sale than a high price.
Neighborhood is stable or improving. Stable is okay, but if you can buy in a neighborhood that is improving, you'll rent the units more easily, and therefore get automatic appreciation in value with time.
And of course, have in place a good property management team in place. They can reduce your headaches, and keep you out of the landlording business!