Know Your Rental Property Before You Buy It.
Evaluating the profitability of rental property can be quite a difficult task, which is why it pays to do some research if you are unfamiliar with the steps you need to take when thinking of buying a rental property. What can you do to ensure a good deal? Here are some tips and tricks you may want to keep in mind:
Rental Property Buying Tip #1: Location, Location, Location
Let’s face it, there are properties that seem to have high-yield potential. Upon closer look however, maintenance costs may actually be more than what you bargained for, thus leaving you with expenses that are worth far more than the amount of money you make off them. When buying rental properties, take the time to personally inspect the neighborhood before making a decision. Take note of the average number of people looking to rent in the area, the median rates for different types of rentals, and of course, the crime rate in the neighborhood. All these will help you determine whether or not the money you shell out will indeed be worth the investment.
Rental Property Buying Tip #2: History Matters
Exercise your right to information by conducting property record searches on the rentals you have in mind. These records are open to the public and can easily be obtained from the county recorder’s office, city hall, or county courthouse. Doing so will give you insight to the property’s history including citations from annual property inspections, changes made to the property without authorization, and any other maintenance issues that can take a toll on your finances.
You can also conduct property record searches to determine the number of times a property has been put up for sale, how long the previous owner had it, pending foreclosures (which opens the possibility of a short sale), and any encumbrances or liens placed on the rental that may or may not affect your decision to make an offer.
Rental Property Buying Tip #3: Use a Property Investment Calculator
One important reason why you should use a property investment calculator when buying rental properties is the fact that some sellers often ask for more than a property is actually worth. As such, it is easy to be fooled into signing a contract that you think is a great deal only to discover that the property is not worth it in terms of profitability. There are free property investment calculators online. Utilize these as often as needed and compare the results with the property’s fair market value so you don’t get ripped off of the asking price.
Rental Property Buying Tip #4: Calculate Maintenance Costs
Determine how much money it takes to maintain the property you want to purchase until such time you find an ideal exit strategy a few years from when you first bought it. This allows you to have a clear picture of the expenses needed to finance the property and whether you can afford the costs.
Rental Property Buying Tip #5: Plot Your Annual Investment Expenses
It is important that you know how much you are expected to spend in one year just to be able to manage your investments. You can use this information to compare projected expenses against projected earnings of the property, and this alone can help you decide whether or not to go for the rentals you have in mind.
Rental Property Buying Tip #6: The Question of Profitability
Return on investment (ROI) possibilities are always a priority when buying rental properties. Any expert will tell you that a rental property is not worth it if it does not provide you with a definite structure as to how and when you will be able to recoup the amount of money you put in. Check if the profits you gain from the rentals can cover all maintenance expenses while still leaving you with a nice profit. A profitable rental will pay for itself sooner than later, but is up to you to determine whether the property you choose can in fact help you succeed in your plans.