3 Fast Facts To Know Before Buying A Rental Property
Buying your own home can be an overwhelming experience, but buying an investment property can be even more challenging. From finding the right property in the right location to purchasing at the best price to ensure you will earn some sort of profit, it is easy to see the challenges of investing in a rental property. However, with proper planning and execution, your rental property will offer you a high return on investment. Known as a ROI, or cap rate, this percentage is the average annual rental rate the property will bring in after expenses. When considering a certain property to rent, you will want to make sure to buy low while ensuring you can receive a decent enough monthly rent. This is your best option for a successful rental property. With these tips, you will know what to look for when buying a rental property.
Location, Location, Location
If you know anything about real estate, you know that location is the most important factor to consider when making a purchase. The more desirable your location, the more appealing the property will be.
A small cottage or condo near a metropolitan area, airport, and large corporations would be appealing to single business people and younger couples just starting out in their professional fields. A 3 or 4 bedroom home in a great school district with amazing parks and recreational facilities would be ideal for a family with young children.
No matter which location you choose, make sure it has a low crime rate and is conveniently located next to shopping centers and major highways if your rental clients need to commute to and from work or school.
Know About Updates/Repairs
If you find a property that is in an appealing location, you must also consider if you will need to make any repairs or updates before listing it as a rental. Individuals will not want to rent out your property if paint is peeling, mold is present, or the heating and cooling system does not function properly. In addition, renting a property that is in need of dire repairs could result in severe health issues and potential lawsuits.
Hire an inspector to look over the property before you invest. This may be an expense, but it is an important one that can protect you, your finances, and your renters.
Inspectors should give a thorough evaluation of the roof, heating and cooling, septic and plumbing, and electrical. Since these are imperative parts of a property, repairing or bringing these systems up to code could be time consuming and expensive.
Another thing to keep in mind when you are considering the purchase of a rental property is the actual purchase price. The price will vary according to a few factors that may include if it is being sold by the individual owner or a bank.
Many owners will accept a lower offer, unless you are trying to purchase a hot property. This may be a property in a very appealing location or if the inventory in your market is low.
Purchasing a property that is owned by the bank is your best option for a higher ROI. These foreclosed properties are auctioned off, allowing the bank to make a portion of the mortgage costs back. Buying a foreclosure at a lower price will allow you to make any necessary repairs without affecting your rental cap rate.
Investing in real estate is not something to take lightly. With the right planning and knowledge in the market, you will be able to find, purchase, and rent out a property in a smart, equitable manner. For more information and assistance, contact a real estate agent in your area.