It’s absolutely true that 90% of millionaires are involved in real estate in some way. It’s always been a great source of monthly income, and a great way to get started with investment properties is to buy a single-family home for its rental income potential.
The benefits are clear – extra cash flow that exceeds your mortgage interest and principal payment, increasing equity, and property values that rise based on inflation alone. It can be a lot to handle on your own, but hire a property management company for a portion of the proceeds and it’s all hands-off smooth sailing.
What do you look for in a rental property? Here are eight key areas to keep an eye on to get your start investing in real estate.
Where a home is situated makes a huge difference in its desirability. Will someone want to rent a home if it’s near a smelly water treatment plant? Likely not. But if they’re a half-mile from the beach or in the middle of a bustling college town, it could be the perfect location. You should also be aware of any permits or business fees you have to pay if you have a rental property in the community, and a good realtor should be able to help.
Some inexpensive homes have ridiculously high property taxes, and you might not factor it into your decision. Since property taxes can vary wildly from one neighborhood to the next, it’s a detail that should be extremely high on your list to understand. It definitely will affect your net operating income on the property.
Naturally, rent is affected by local crime. If someone can afford to live in a low-crime neighborhood, why wouldn’t they? And if you can afford to buy a rental property in an area with low crime rates, you should. The truth is that when trouble is near, it will affect your renter’s satisfaction and can impact turnover. Since you want long-term renters, high crime certainly isn’t ideal.
Local business community
What retailers, restaurants, and services are available nearby? If you’re looking for a rental property in a busy city, map out what’s available in walking distance. If it seems inconvenient, that should draw a red flag – that’s what your renters are going to be looking at as well.
What extras make the home special? Is there an amusement park close by or a movie theater, night life, or a beach nearby? Again, the proximity to all these things will influence what your prospective renters are willing to pay as much as the quality of the home itself.
What’s the community vision? Are the streets being revitalized and is the city growing and thriving? Or are businesses packing up shop and moving to other places? Whether the neighborhood is stagnant, growing and thriving, or slowly dying will impact if it’s a good investment property or not.
An ideal situation is obtaining a rental property where vacancy rates are extremely low or nil. It all but guarantees you’ll be able to rent out your home at a great rate. Your realtor should once again be able to inform you about local vacancy rates.
But if the vacancy rate is alarmingly high – say, 10% or higher – there’s a good chance you’ll have difficulty getting enough rent to cover your property mortgage payment and taxes, not to mention pay for someone to manage the property. Look for vacancy rates of 5% or less.
And of course, you should know what comparable properties are being rented for. The average rent paid in the community for similar properties will help you decide if it’s a solid investment or one you should pass on.
Looking to break into the real estate investment market? It’s the type of investment that can reap dividends for short-term and long-term holders. Find out how you can get a mortgage for a rental property today by calling MBANC.