Things You Should Check Out When Buying a Rental Property
Buying an investment property to rent out is a great way to earn extra income and provide for your future. Buying a rental property is one of the soundest investments you can make, something that both appreciates in value and earns income at the same time. However, renting a property out is not just a question of paying the money and leaving it alone. There are plenty of issues, challenges, and responsibilities to consider, and ensuring that you have thought of everything is a vital part of buying a rental property. So, what are some things that you should look out for when buying a rental property?
Some things that you should look out for when buying a rental property are the location, outdoor space, fixtures, maintenance, neighborhood demographics, resale value, parking, and eco-credentials.
Doing your research beforehand will help you maximize your income from your rental property, as well as help to avoid any potential issues or problems, and ensure that you are a considerate and responsible landlord at the same time.
So whether you are buying a rental property in your home neighborhood or investing abroad after you explore the surroundings with a weekend cruise, here are some of the things you should check out when buying a rental property.
8 Things to Look For In a Rental Property
Location is one of the most important considerations when buying a rental property. Does the property have good transport links? Do you have to travel far to get to shops, cafes, restaurants, or entertainment? Are there good schools nearby? Getting the location right is the biggest step towards maximizing your rental income and attracting the right tenants.
2. Outdoor Space
For many tenants, outdoor space is a must. Whether a small terrace or a large garden, outdoor space is very attractive for plenty of people. But it does depend on who you are trying to rent to – for busy professionals or young students outdoor space might just seem like something extra they don’t have the time to maintain, rather than a bonus.
3. Fixtures and Fittings
When you are buying a rental property it is worth paying close attention to the fixtures and fittings. Buying a property that comes complete with everything necessary for daily life means you can save time and money and get tenants in right away. It is also worth checking that fittings are in good order so you don’t have to worry about replacing them down the line.
Pay attention to how difficult or expensive your potential purchase might be to maintain. As a landlord, it will be your responsibility to keep the place in a habitable condition, and if the property requires a lot of maintenance then this could be an issue. For example, old buildings with original features might look beautiful, but maintenance can sometimes be a challenge. Similarly, a big garden might be a huge draw, but without proper care and attention it can become overgrown and unmanageable, and a garden covered in weeds can actually have the opposite effect than intended when it comes to attracting tenants.
5. Neighborhood Demographics
When it comes to location, the easy things to spot (schools, transport links, parks, etc) are obviously important, but there are subtler things to look for as well. The demographics of the neighborhood itself are important, but harder the investigate. Additionally, the neighborhood associations such as the HOA also play a major role in the property’s value. Looking into whether there is a big renters market, whether the area is growing or gentrifying, and what the job market in the area is like, will add vital insights into what sort of property you should buy, and whether you should invest in the area at all!
6. Resale Value
Don’t forget that this is an investment! While rental income is important, you are also looking to get a return on your investment, so consider the potential resale value of the property once you decide that it is time to sell. You’ll want to think about whether the area is on the up, as well as look for ways that you could easily add value to the property.
Not a must-have for everyone, but a deal-breaker for those who need it. Depending on who you want to rent to, access to parking can be a big deal, and it is worth considering in advance. If you are aiming to target the family market then chances are they will want a parking space, in which case it is something to look for in your property.
Green living is increasingly important for renters these days, which makes it something to keep an eye out for when buying an investment property. Thinking about things like solar panels or heat pumps, as well as insulation and even construction materials might seem like a detail too far, but they may be of interest to some prospective tenants and can be seen as quite an attractive aspect of a property.
Things to Consider When Buying a Rental Property
Don’t Rely on Personal Preference
It is important to remember that you are buying a property to rent, not to live in yourself. This means that you should try and ignore your own personal preferences and stick to looking for features that will appeal to a wider market.
Think About What Tenants You Are Looking For
It is worth considering the types of tenants you want to attract, as different people look for different features when renting property. For example, if you are looking to attract families then you might want to consider local schools and potential space for playing in the house, while students would be more interested in proximity to campus and the local nightlife!
Keep Mortgage Payments In Mind
Don’t forget to budget carefully and bear in mind that your rental income needs to at least cover your mortgage payments, and ideally provide you with a significant extra income. After all, your rental property is a business!
Think About Operating Expenses
Of course, a rental property doesn’t sell itself, and it is very important to consider the continued investment you’ll need to make in order to ensure that the property is continuously occupied by paying tenants. Expenses like marketing, property management, and HOA fees should all be paid for out of the rental income, so it is important to budget well and make sure that your predicted earnings will be sufficient.
Property tax varies from state to state, and even from county to county, so it is important to do your research in advance in order to avoid a big hit to your income. Find out what you’ll be paying in tax before you decide where to invest so you have all your facts and figures straight right from the beginning.
While there are many things to consider when buying a rental property, these are some of the most important factors to keep in mind. By being aware of these potential problems, you can save yourself a lot of time and money in the long run. With careful planning and due diligence, buying a rental property can be a great investment.
What type of investment property is right for me?
There is no one right answer to this question, as it depends on what you want your investment property to be. The main thing to think about here is what type of tenant you want to attract, as this will have the biggest impact on the type of property that is right for you.
What does the location have to offer me as an investor?
The old adage of “location, location, location” is just as true today as when it was coined, but there are many aspects of deciding on what the location offers you. If you feel the need to be a hands-on landlord you will want to buy a property near to where you live, otherwise, you will want to make more hard-nosed judgments about how your property will appreciate in value and how much rent you can charge.
What is the yield potential?
Related to the above question, yield is the most important thing for a property investor to think about. Rental yield tends to be the focus, although the resale yield is also important. The main aim is to try to find properties and areas that outperform the average.
How much work am I willing to put in?
This a good question, and one that will fundamentally alter the style of property you buy. A fixer-upper is a brilliant investment if you have the time and the inclination to actually fix it up, otherwise, a new build might be a more sensible choice. You can also manage the level of responsibility you have when you choose whether to manage the property yourself or hire a management company.