Rental properties can be lucrative, but you must be smart about your investment. Before buying an investment property you should think about they type of landlord you’re going to be. Are you going to be hands on, or will you hire someone to manage your property? If you plan to be hands on, then you should choose a property that is within reach of your own house, that way you aren’t too far away if problems should arise with the property or tenants.
The first thing you should consider when buying a rental property is the location. Look at towns that have high home prices, these prices usually create a need for affordable rental homes.There is a pretty penny to be made in urban dwellings if their close to great shopping, museums, or metro services. Be especially careful if you plan to buy a condo or apartment in a low income area that has yet to go through gentrification. You might not get the returns on your investment as quickly as you hoped. However, young professionals love these types of dwellings because they are so close to the city’s nightlife and amenities, but families won’t take the risk if they have concerns about crime and schools. Before deciding on an area you should be up to date on information about community, crime, city plans and services for your potential rental project. Don’t rush in, do your home work!
Property taxes are the next concern because they are not standardized, which means that if you property taxes are high, you might wind up losing money on your investment. Check with your local assessment office for tax information and talk to your potential neighbors in the community. The best determinant of your taxes and possible income are local services. Are there school near by, what are they like? Is it a stable neighborhood? The better the property the more likely you’ll find a preferred tenant. In Central Florida, you might want to consider how close to theme parks and attractions your rental property is and what your potential vacationers might want in a rental property. You can always look online and see what other people are renting out to vacationers and where these properties are located.
You will also want to think about who pays for things like HOA fees, water usage fees, landlines and broadband. These amenities can be packaged with the cost of rent, or you can pay for them yourself. When choosing a home look at its indoor and outdoor features. Does the dwelling have features that you will be responsible for, such as pool, large gardens or ponds. When creating your budget don’t forget to include these items. Do a home inspection, are there any upgrades you will need to make to the property before you can rent it out? If you need or want to make changes to the house what type of permits will you need?
You should also consider how much money you will need to generate as revenue to make the property profitable for you. To calculate this you should research the gap between market rents and market sales prices. If you’re spending more than 60-70 times the market rent on a property you might wind up losing money rather than making it. Research what the rent is in your area, what are other landlords charging and what are the tenants getting for their money? Be wary of properties that require major upgrades, you might make the upgrades only to have your property values shift. Suddenly your tax expenses are too high and the generated income isn’t sufficient to sustain the house, this could force you to sell. Low maintenance buildings mean less headaches for you, avoid homes with wood siding or wooden shingles.
Once you’ve bought your property do a thorough background check on all your prospective tenants. Get referrals and make sure you’re not renting to someone who’s going to cause you problems. Students are good rent payers, but they typically destroy property and leave during the summer causing a lull in your rental income. Get all the information you can on your own once you’ve established a budget and get help from a real estate agent who can help you find exactly what you’re looking for and help you to get it at a price you can afford.
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