Thinking about buying an investment property? With so many good deals out there today it’s not surprising, and you are not alone. Here are some tips to help you make the best choices for your investment property.
If you want to rent to students, don’t get too far away from campus. If you want to rent to professionals, stay close to their work place. If you think that you’ve found the deal of the century make sure you know who’s likely to rent from you before you buy.
Look at your tenant market.
Study the rental rates in the area you are investing in. One side of town can be much more lucrative than another for the same home and size. Make sure rents match up with the amount of rent you require to make it sensible for you to own. Don’t forget to include association dues, insurance, and property taxes in your calculations.
Location, Location, Location!
I’m saying it again, because it is that important.
If the location isn’t ideal, you could be stuck with a vacant rental for months. It doesn’t matter what the condition is, you can always fix that. You can never fix the location.
Homes Ownership vs. Condo Ownership
If you are an absentee landlord (out of the area and cannot drive by the property occasionally), I recommend investing in a condo, or a home in an area that includes yard maintenance. (Would you like a list of homes that include yard maintenance?)
Some home owner associations even have exterior of the home and landscape maintenance included in the association fees.
Homes will require the tenant OR YOU to maintain the yard and exterior of the property. Yard maintenance is something many investors overlook. Not just mowing, but also consider who will be doing the raking in the spring and fall, picking up tree branches, and trimming the bushes. If you don’t do it or pay someone to do it, your rental rates will drop for the next years as the forest creeps up to the front door.
Condos have association fees that usually run about $200/month. This normally will include maintenance of the grounds, roof leaks and replacement, and exterior of the building. You will take care of the interior, things like the ac, heater, water heater, appliances, doors, windows, tubs , sinks, carpet, flooring.
At the end of this write up, I have attached a list for you to use. Write down any issues you notice and decided when you will need to replace each major item, determine the cost of the item when you are going to buy it, and set aside that amount from the rent money each month per item to cover the cost.
Financing a rental property
Today most lenders will require you to bring 20% to 30% or more of the total purchase price as a deposit to be able to finance a rental property. Some banks just flat out don’t finance a rental property today, or a rental condo. If you do find a lender, expect the interest rates to be higher than a homestead loan by a few points.
Should you Invest? Look at the Cash Flow
I’d be happy to help you run the numbers on several properties, so you can see what your potential returns would be.
If all this sounds like you still want to invest in rentals, then give me a call or email and I will help you find one.
Would you like our Checklist for Buying an Investment Property?