April 5, 2016 in Investing In Real Estate
Real estate investors are always looking for profitable rental property to add to their portfolios. This is an especially good time to be buying rental property because the rental market is hot in most areas across the country. Today we have some tips for finding the best rental property.
I have found that when investors are just getting started with rental property, the same questions come up time and time again.
- What exactly does a good rental property look like?
- Where do you find them?
- How do I know if a property is a good investment?
- What are the things most renters are looking for in a home?
- If I'm just getting started, what are the things I need to know?
Today I have another guest post by Satinder Haer of Zillow. She has some tips for you today for finding the best rental property.
Getting Started Can Be a Challenge
Getting started in real estate investing can be a challenge. There is often an overwhelming number of factors you have to take into account as you contemplate your first, and every subsequent, property. Certain markets tend to better suited for rental properties than others, due to rental demand, job growth and housing prices. Even if your market is conducive to owning rentals, selecting the correct property and accurately assessing the return on your investment can prove difficult. However, these barriers can be overcome with the proper research before you purchase a property.
Use these tips to fuel a successful hunt for the best rental property in your market.
Get to Know Your Market
Real estate is a local game so it’s necessary for investors to understand the landscape in their market. Even within a healthy rental market, factors such as crimes or access to public transportation can make one neighborhood less desirable to renters than another. When considering neighborhoods that you might want to invest in, research the following:
- Public and private schools: renters with children may ask, and will likely take into account, which schools are available in the area. Great Schools provides ratings of schools and allows users to submit reviews; you can use it to determine the quality of schools in different neighborhoods.
- Crime: dig around on the local police website for crime-related statistics in the neighborhoods that you’re considering. Trulia also offers a crime map that you can access by simply selecting the “crime” option from their explore tab, inputting the city name and zooming in to see crime levels in the neighborhoods that you’re considering.
- The job market: cities with low unemployment and expected job growth tend to be good markets for investors due to a healthy influx of renters. Try to gauge how stable the job market is in the areas you are considering. A steady supply of renters will help minimize vacancies.
- Access to public transportation: this might not be critical to all renters but it’s good information to have on hand as you’re comparing different locations.
Find an Agent
Working with a real estate agent can aid your search for a lucrative investment property. Agents are usually very knowledgeable about the areas that they serve and can often help you snag homes that haven’t even hit the market yet due to their connections in the local market. Additionally, partnering with a real estate agent ensures that all the paperwork is handled correctly and that someone is constantly monitoring the MLS for new listings on your behalf—allowing you to focus on the other aspects of your house search.
However, some agents are hesitant to work with investors, so it’s important to meet with several agents and find someone who is a good fit for your business, personally and professionally. If you end up purchasing more than one rental property, having an agent on your team can allow you to grow your portfolio faster and create a win-win relationship for both of you.
Calculate Return on Investment
As you narrow in on good neighborhoods for your property search, it is important to familiarize yourself with the financial aspect of the investment equation. Once the right home hits the market, you may have to act fast to snatch up a good deal. If you’ve already done your research on the neighborhood and like the physical property, all that’s left is to crunch the numbers and ensure your rental will produce your desired cash flow. Regardless of which method you use to calculate your returns, take these factors into account:
- Long- term appreciation potential: it’s usually not a good idea to bank on making a profit purely through home appreciation. Most investors seek to generate a cash flow that covers the mortgage, home repairs, vacancies and a profit each month. However, consider the potential for long-term appreciation when evaluating different properties.
- The cost of home repairs and renovations: consider how much additional money you will need to spend on getting the property ready to rent out. Also factor maintenance, long-term repairs (such as the roof or water heater), property taxes and renovations into your rent calculations.
- Vacancies: the likelihood and duration of vacancies can be extremely variable. A common rule of thumb is to estimate 10 percent vacancy per year and factor that into your rent, but also consider rental demand in your specific location when estimating this figure.
With the proper preparation, real estate investing can be a positive and profitable endeavor. Take the time up-front to learn the ins and outs of your market and calculate the numbers carefully. Finding the best rental property often requires a big time commitment up-front but may pay off in the long run.
Thanks again to Satinder Haer for her excellent tips on finding the best rental property.
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