Experienced real estate investors know landlords make their money at the time of purchase. A well-kept building in a good neighborhood with the right numbers makes a promising rental property for investing landlords.
The neighborhood has a big impact on a residential real estate investment. Location can affect the vacancy rate, tenant demographics, and rental income. Like everyone else, renters are looking for safe neighborhoods. Reviewing crime statistics can help landlords gage a neighborhood’s safety. Many investors value families and couples as tenants because they tend to rent longer than single people. A quiet neighborhood with a good local school is more likely to appeal to families and couples. Other landlords like the dependability of properties near colleges and universities since there wo;; always be students in need of housing from fall through spring. Finally, landlords can charge higher rent on a property in a quality neighborhood.
Newer properties and well-maintained properties are less likely to need major repairs in the near future. Even properties that are in good condition require some work to be move-in ready. Investors need to consider how much it will cost to get the property in condition to be rented. Investors who plan to do their own repairs need to be realistic about their abilities.
Analyzing the numbers is critical to making sure the property will be a money-maker. First, the cost of the property has to be low enough to get an acceptable return on the investment. Some experts recommend new investors make $150,000 the maximum purchase price for their first property. Others advise investors to use 70 percent of the after-repair value minus the estimated repair costs as a guideline to determine the maximum purchase price.
Secondly, investors need to do their due diligence to ensure monthly rental income will be greater than the monthly mortgage payment. Otherwise, the property will not yield a return on the landlord’s investment. One guideline that investors can use to determine the monthly rent is the one percent rule. It multiplies the purchase price plus repair costs by one percent.
The property tax is another number to consider. Investors need to be aware that the current property tax might not be the amount they’ll pay. Some municipalities have different property tax rates for investor-owned properties than owner-occupied ones. The final number to consider is the cost of landlord insurance. Landlord policies provide coverage for the additional liability that comes with rental property.
Investing in a rental property can yield incredible returns, but being selective and proactive in making a purchase can greatly influence your chance of success.