Choosing to invest in rental property is a big decision that comes with various considerations. Before you jump into it, it’s important to have a better understanding of the market.
This article will address why to invest in rental property, how to determine a good property, and what to look out for when you do. We’ll even touch on the other side of the coin – why some investors are not interested in turning properties into rentals.
When the real estate market crashed, many investors turned to purchasing discount homes and turning them into rental properties for a steady income stream. House flipping was essentially dead for a couple of years after the crash – a tumble that led many with interest in flipping homes to utterly new career fields.
However, as the real estate market started to progress toward recovery, many investors renewed interest in buying and selling homes again. Still, it appears as though investing in rentals has not lost its appeal.
Over the last few years, rental prices have increased in specific zip codes across the country. This has been primarily due to the high lending standards and an unstable housing market that has kept many people from buying a new home.
Although tight financing restrictions have ebbed and the market is improving, the strengthening economy is leading to an increase in rent in many cities.
As a result of the increasing rent, many investors are looking for homes to turn into rentals while developers are trying to build condominiums and rental complexes as quickly as possible.
Determining an excellent rental property can be tricky, but it’s important to know what to look out for. Here are just a few considerations to help you find a good investment property.
Your rental income will be how you make money, so you need to pay attention to the average rent in the area.
Look around at local listings. If you see, there are a lot of vacancies, it might be seasonal. If you keep your eye on these vacancies, you might see trends that the neighborhood is becoming less popular.
The local amenities will also help determine a good rental property. The property’s proximity to local restaurants, parks, gyms, etc., can help attract renters.
The neighborhood of a rental property will be a huge determining factor in what type of tenants it will attract, and you can anticipate your vacancy rate. For example, if the neighborhood you are looking at is close to a college campus, you can expect a large pool of student applicants.
Areas with active job markets tend to be hot spots for rentals. You can find job availability in any specific area by checking with a local library or the U.S. Bureau of Labor Statistics.
If you’re looking at family-sized homes, you’ll want to be mindful of the ranking of the nearby schools in the area. Families will check the quality of schools when searching for rentals.
Criminal hotspots are huge deterrents for rental properties. Look through public records to find local crime rates for any particular neighborhood you are considering.
Property taxes vary significantly across the country and can even range drastically within a particular area. Always be sure to look out for high property taxes, but bear in mind this is not always a negative trait of a rental property.
You can find information about future developments in the area by checking the municipal planning department. Areas with a lot of upcoming construction are typically a sign of good growth.
Insurance expenses are often overlooked when investors seek out rental properties. Get a good idea of what insurance to cover natural disasters in your area will be.
Once you’ve found a good rental property, it’s time to move forward with securing it. But, before you do, there are a few things to beware of. Buying a rental property is very different from an owner-occupied home.
In comparison to owner-occupied properties, rentals typically require a bigger down payment. You can expect a minimum of 20% for a downpayment for a rental property. The larger amount due upfront is because mortgage insurance isn’t available on this type of purchase.
In addition to a larger down payment, you can anticipate more stringent approval requirements in a rental property.
Similar to the down payment, the interest rates of a rental property vary drastically from owner-occupied homes. If you decide to finance your rental property purchase, make sure you beware of high interest rates that can really hurt your profit potential.
Investing in a good rental property may be an excellent financial decision for you, but you need to be aware of your legal obligation as a landlord. Take the time to look into the landlord-tenant laws in your state and local region.
These laws will help you to gain a better understanding of some of the basics of owning and operating a rental property, including:
Although now is a great time to buy homes for those interested in investing in rental homes, many investors shy away from this market. Why? More often than not, they do not desire to be a landlord – the day-to-day aspects can be incredibly time-consuming and prohibit them from doing what they love.
Fortunately, property managers are the perfect people for these investors. From tenant selection to collecting rent payments and scheduling maintenance requests, a property management company can take care of the daily aspects of owning a rental property – saving you valuable time and energy.
If you decide that you want to invest in rental property, now you are well equipped with the knowledge to do so. You currently have a better understanding of the appeal as well as why some investors avoid rentals altogether.
Ultimately, if you decide to search for a rental property, you know what to look for and how to secure your funding.
Spencer is the VP of Marketing at Evernest. He wakes up with Google and Facebook on his mind. Having bought and sold over 150 homes in Birmingham, Spencer gets a kick out of helping new and seasoned investors navigate the mistakes he made as an investor. Spencer is also passionate about his love for Michael Jordan and does his best to explain to the Millennials (who never saw him play live) how much better he was than LeBron. He loves to hang out with his wife, kids, and the world’s best black lab, Jett.