10 Things to Consider When Buying a Rental Property October 7, 2021
Buying a rental property is an excellent way to increase your cash flow. It also improves your overall net worth. However, that doesn’t mean that all investment properties make a profitable business. There’s many contributing factors that make a rental property a worthy investment.
Here we’ve listed ten factors you should evaluate and consider before buying a rental property.
Things to Consider When Buying a Rental Property
Note that HOA fees are an important determining factor on whether an investment property will be a profitable deal. Some HOAs can reach upwards of $500 or $1000 per month. When you combine this with the cost of your mortgage and other expenses, your chances of making a profit dwindle.
It’s important to find a good location with an HOA that isn’t too high or too low. Both can greatly affect your overall profits. A decent HOA will keep the neighborhood attractive while not burdening homeowners with a costly expense.
An expensive HOA or mortgage aren’t the only expense you’ll have at your new property. Property taxes can be a large chunk of your monthly expenses for your new rental property. To make matters worse, property taxes tend to increase each year.
Usually this price is dependent on the area you live in. More upscale and higher end areas will typically charge you more in property taxes.
Location is undeniably the most crucial factor to consider when investing in a property. Not many people want to pay high dollar to rent a property that’s in a dangerous and rundown area or neighborhood. The nicer the area your property is located in, the more money you can make on rent.
Location plays a huge factor in how the property performs over time.
The amount you put down on a property can greatly impact the return you get on it. A small down payment often comes with a higher interest rate, while a big down payment may limit your ability to manage repairs and regular maintenance.
It’s important to choose a home that isn’t out of your budget and you feel confident in covering basic expenses and maintenance.
Potential Rental Income
You need to consider the potential profits you can earn by renting out the investment property. You can typically estimate the amount of income you would earn by comparing rental properties in your local area. It’s important that your rental amount accurately reflects the market around you.
Note that short term rentals, like vacation homes, can pull in more money versus long term rentals. However, vacation rentals are often times seasonal, so your income can drop during these times.
You must have enough money for repairs and improvements when buying an investment property. Some properties require renovations and remodeling right off the bat, while others do not.
It’s important you make a budget, because renovations and basic repairs and maintenance will eat at your profits.
Did you know you’ll need different types of insurance if you buy an investment property?
You’ll need homeowners insurance, and if you plan to rent it out you’ll also need rental insurance. Some other basic insurance you’d need are liability insurance, property insurance, and umbrella insurance. It would also be wise to purchase flood insurance, especially if your property is located along the coast.
It’s crucial you check and see whether the property you’re looking to buy has any rental restrictions. This is because some condo and apartment complexes forbid long-term rentals. Some may also have strict no pet policies or limit the number of guests per room.
It could be very burdensome to find this out after the fact, so these are questions you need to ask beforehand.
Investing in a property with high-level amenities makes a good deal. Many tenants are willing to pay more for advanced and amenity-rich properties. It may include anything from green space, pools, hot tubs, fire pits, playground equipment, etc.
The property value increases if you buy in an area that is well developed with close grocery stores, restaurants, shopping, airports, resorts, and schools. In well developed areas you’ll be able to charge more due to the home’s easy access to everything.
That’s why it’s crucial to think of long-term development when buying a rental property.
Overall, to make a reliable passive income, you can expand your real estate portfolio by buying an investment property. Thus, the given factors are important to consider when making an informed decision.