Where To Buy Rental Property
Last week, we discussed what becoming a landlord of your own rental unit entails. However, the first step to becoming a landlord is buying your rental property…but not all rental properties are created equally. Here are a few things to consider before buying a property for rental income…
Which Hood is Good?
If you intend to be your own landlord and actively manage your property, buy a house or building that’s not too far away from where you live. (Obviously, this is less important if you intend to have a property management company run it.)
The neighborhood you choose is one of the most important choices you are going to make. No neighborhood is perfect but you’ll need to find one which suits your needs and which is as reliable as possible. The key is to have steady tenants so while a resort area may seem the most attractive visually, consider that such a property might only be popular during the summer or winter break season.
Conversely, while a college town will command no shortage of prospective tenants (and higher rent prices to boot), consider that there might be a lot of turnover and demand lulls, especially during the summer and winter breaks. Obviously, owning units in low income and high crime neighborhoods will come with attendant headaches such as unstable tenants who may not make rent consistently or damage by vandals or burglars to your building so take those issues into account.
Schools and Crime
A neighboring school can greatly affect the value of your property. If your building is near a good school, you will attract tenants with children.
If your property is too close to a school – as in, across the street or sharing the same block –that could impact your investment, too. Noisy elementary schools during the day or wild high school teenagers loitering after classes could affect how desirable your block is and how rentable your units are.
As mentioned earlier, crime is another reality that may hurt your investment or your ability to maintain tenants. It may also affect the costs you lay out on security gates, surveillance equipment and alarms. The potential for vandalism and mayhem and the safety of your tenants, their cars and your building are all details worth vetting before making your purchase.
Job Market
A region’s job market is another important factor in terms of attracting quality professionals who will remain stable tenants. After all, the more likely they stay employed, the more likely their rent checks will keep coming in on time. Google U.S. Bureau of Labor Statistics to check out the job market in the town around your investment.
Convenience, Amenities and Proximity?
Beyond your building, what does the immediate area offer for a tenant living there? Is it easy to park on or around your property? Is it conveniently located near shopping centers and department stores? A mall? Banks? A gym? Fine dining? Parks and hiking areas? Lakes or beaches? The community’s downtown area? The freeway exit? If it’s a small town, is it conveniently located within a short drive to a big city or a treasured tourist town?
All such factors may enhance the object of your purchase.
What’s the Average Rent?
With a new property, you’re no doubt going to have mortgage payments, monthly HOA costs, home insurance (considerably more expensive in areas prone to flooding, earthquakes and other natural disasters.), or, at the very least, property taxes. You’ll also be investing money into repairs, maintenance, even security.
So one of the most obvious considerations is whether or not the monthly rent coming in from your tenant(s) will cover your costs. Go on Craig’s List and Google to find out what equivalent rents are going for in your property’s neighborhood.
You might want to demand below-market price rent to snag a tenant but will you be losing too much money in the long term? You might want to demand more than the market value but will meeting that higher rent complicate that tenant’s stability?
In other words, make sure that the median rental rate in that area is feasible for you compared to your costs.