3 Tips For Buying A Rental Property
Investing in rental properties can be a great way to acquire wealth, provided you are smart about your investments, willing to learn the game and don’t see it as a way of getting rich quickly. On the face of it, it seems quite simple. Snatch up some properties, fill them with tenants, and collect those rent checks. But, there is a lot more to it than that. If you are in the process of seeking out potential properties, here are some important things to consider.
Getting a Property at the Right Price
Naturally, one of the most important things is getting a property at the best price possible—the goal is appreciation, and getting more for the property than what you paid, should you eventually sell it. There is no magical formula for determining whether something is a ‘value’ as many individual factors are taken into consideration for a particular piece of property. This will require some effort on your part—your other alternative is simply making low-ball offers at every turn, waiting for a bite. But, this is not really the best way to go about it, is it?
Research rental prices in the area for similar units to get a good idea of what you can charge for this property; determine the spread you want between what you are paying for the property and what you are bringing in with rent. Obviously, the more profit the better, what really consider your goals and what type of money you are looking to make, at least initially.
Avoid Properties that Need Excessive Work
You can surely find great deals on properties that are in need of a bit of sprucing up, but tread carefully here. Sometimes, the money you save may not be worth the hassle. Or, you completely underestimate the amount of work needed, or find really expensive problems down the line, after the fact. Focus on properties that need basic fixes, like door and window replacement, a paint job, or some new flooring. If you have a great team in place to do the work, or you are very handy, a more run-down property may be worth considering if you do a meticulous estimate, and the numbers look good; but in most cases, this is a mistake, especially for the first-time buyer.
The Bigger the Better…Not Always
A lot of space around the property is not necessarily a good thing as far as your return on investment—sure, it may increase overall property value, but you will be paying more taxes on it. And, unless you are planning on building additional units, or some other income-producing structure on the extra land, really won’t do much to increase rental income.
This line of thinking applies to the actual house as well; for example, if all the bedrooms meet the minimum size as required by local codes, a house with smaller bedrooms may be a better bet than a house with fewer, but larger rooms, depending on the area in which you are renting the unit.