Buying a rental property can be very lucrative and an excellent way to build equity by allowing your tenants to pay the expenses of owning the property. However, as in all real estate investments, it is very important to buy wisely to help ensure you buy a cash cow and not a money pit! Here are some of the key factors you should consider when looking to buy that great rental investment that will pay dividends long into the future.
We know you heard it before, the three keys to real estate investing is location, location, location. This is certainly true with rental properties. Look for an attractive area that has amenities that will attract renters – shopping, schools, and groceries stores. For example, one our favorite places to own rental properties is a neighborhood of small brick homes (3 bedrooms, 1 bath) with nice yards. The neighborhood is in a very good school district and there are not many lower priced rental homes in the school district. It is a great opportunity for a family to get their children into goods school if they cannot afford the higher priced homes in most of the district. Once they move into the home, they tend to stay for the long term to keep their children in the good schools.
After location, the next most important key is to run the numbers. You need to consider all expenses when reviewing an investment opportunity, not just the monthly mortgage payment. You need to estimate the monthly maintenance and build in a vacancy allowance that is reflective of your rental market. When completed, you should be targeting a positive cash flow beginning with your very first tenant.
High home prices
Begin to look in areas that have relatively high home prices and target the lower priced homes in that area. The higher prices will create rental demand since it will be more difficult to purchase a home. As we said above, our favorite rental area is an area with higher priced homes and very good schools. We then target the smaller homes in that area for rental investments. In this type of area, the properties rent quickly and stay rented for long periods of time. This creates solid rents and low vacancy rates.
Low maintenance buildings
Avoid slate or cedar-shake roofs, and wood-sided buildings. Ideally, look for smaller brick homes that have been built solidly. When analyzing a property, do a thorough assessment of any deferred maintenance needs and make sure your offer reflect the cost of these needed repairs.
Good rental history
If the property has been rented before, ask the owner to see the rental history. Pay attention to how long the tenants are staying and how well they have been paying on time. This will help you estimate the amount of rent and the level of vacancy you can expect.
Below market rents
If you can find a potential rental property that has existing below-market rents, you will have an opportunity to raise the rents and improve the cash flow. By improving the cash flow, you will also improve the attractiveness and value of the rental property.
Comply with building codes
When making an offer on a potential rental property, make sure the contract has a provision or contingency for doing a home inspection. Make sure you hire a professional home inspector with good referrals.
Owner/manager that is out of state
These properties are often the best deals to buy since it is very tough to manage a property from a long distance away. An out of state seller is often more motivated to sell quickly rather than getting the highest price.
Stable or improving neighborhood
You should look to buy in a neighborhood that is improving or at least, very stable. In this areas, the properties are easier to rent and will stay rented longer. This allow helps the property appreciate and improve your rental investment.
RVA Home Buyers buy houses fast in Richmond, VA and the surrounding RVA areas in any condition! They pay cash and homeowners will not pay any commissions, real estate agents fees, or any other charges. They will even guarantee their offer and homeowners can have a check in as little as 7 days.
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