Questions You Should Ask Before Investing in a Rental Property
Renters Warehouse Blog
When it comes to successful investing, being prepared is half the journey. While you may think that most successful investors just land themselves in lucky deals, rest assured there is plenty of research and homework that is done behind the scenes.
Investing in a rental property requires a lot of groundwork. While you may already have your plans in place, the work isn’t over yet. Before you say yes to that property that seems to fit the bill, it is important to ensure that the property is right for you and your investment strategy.
Prior to jumping into a deal that looks too good to be true, here are a few questions you should ask to help ensure you end up with the best investment, one that will help you to reach your big-picture financial goals.
- What Updates Have Been Made?
One of the best things you can ask about a potential investment property is what updates have been made, and when. Unexpected repairs can take a significant bite out of your profits, so make sure you know exactly what condition the property is in. Start by considering the major areas of a home, such as the roof and the foundation, as well as the plumbing and electrical systems. These are all major areas that could leave you with expensive upgrades and repair costs if they haven’t been updated or replaced recently.
While the cosmetic appearance of a home might be more interesting to pay attention to, these things can often be easily upgraded with minimal hassle. Things such as a roof can run you upwards of ten thousand dollars that you weren’t intending on spending. You should also consider the structure of the home. Does the foundation appear to be solid? What about the framing of the home? Consider the bare bones of the property in question before deciding if this is the right move for you.
In some instances, properties are being sold heavily discounted. Often, this is because they need extensive repairs. If you are looking for a project then this might be appealing! However, if you are looking for a move-in ready property to start turning a profit immediately, don’t be caught off guard. You’d be surprised at the time and costs that are required to bring a fixer-upper into rent-ready shape.
- What Are the Property Taxes?
The last thing you’d want to discover is that you are responsible for a tax bill that you weren’t expecting and hadn’t factored in. Before you decide that this is the right investment property for you, you should do some research on the property taxes in the state that you’re thinking of investing in. Some areas update their tax assessment based on the value of the property when purchased, so if you purchase a property for, say, twice as much as it was originally valued at, your taxes could potentially double as well. Take a look at this interactive tax map to see the average property taxes paid in different counties.
- How Long Has It been Vacant?
If you’re buying a vacant home, it is important to consider how long it has been vacant for, and why.
Many vacant homes can be vandalized or have extensive damages occur when there is no one living there, especially if the heat has been turned off during the winter months. This is an especially important consideration if you are purchasing a property that is out of town or one that you haven’t been able to lay eyes on. You should also consider why the property has been vacant for so long. While pricing could be an issue, there might be another underlying problem that’s keeping people away.
- What is the Local Housing Market Like?
What is the surrounding area like? You can always change the layout of a house. You can change the paint colors and landscaping to boost curb appeal, but one thing you cannot change is a property’s physical location; the housing market it’s located in. In most cases, you’ll want to look for signs of a healthy and emerging marketing; one that’s expected to experience growth.
Tip: Be sure to check out the Renters Warehouse Research Center to get crucial data on any housing market across the country. See housing appreciation, population changes, unemployment rates, and more!
Ensuring that the neighborhood is ideal for rental investment is also crucial to your success. For instance, if you are looking to attract families, you might consider how close to schools or parks the property is located. Is the house near a busy street or a quiet suburb? A home in a quiet suburb most likely will attract a family, while a house close to a train station or university will most likely attract college students or single people who are looking to live close to public transportation. Consider whether there will be demand for your property in the area that you’re thinking of buying in.
More information about finding tenants can be found at Finding Great Tenants for Your Rentals
- Do the Numbers Add Up?
Next, do the numbers add up? After you’ve calculated your cash flow, and factored in estimated expenses including mortgage interest, insurance, repairs, maintenance, and more, will you be generating a profit that’s in line with your big-picture goals? Make sure you find a property that will produce returns that you’re looking for, not just one that seems like a good deal.
- Is This the Right Investment for Me?
Only you know what your ultimate goals are and only you know if this investment will be the best option. While the numbers might be amazing on paper, the property might not be the type of investment you are looking for. Don’t feel pressured to settle for the first property that aligns financially. Don’t fall victim to the pressure of rushing to buy a property just because it looks good on paper. Make sure you’re comfortable with the type of investment that you’re making (Single-family rental, multi-family, etc.) and be sure to familiarize yourself with the ins and outs of that specific investment ahead of time. Being well-informed will give you the confidence that you need to move forward with your investment.
- What is My Exit Plan?
It’s always important to have an exit strategy in mind. Not just an immediate exit in case things don’t go as planned, but an exit strategy that you can employ down the road, ten years or so, when you are ready for a change. Fortunately, rental property gives you options. You can use it to fund your retirement or to help set you up for long-term financial freedom. When it comes time to sell, you can cash out and use the proceeds for something else. It’s a long-term investment and one that gives you options.
- Am I Ready to Be a Landlord?
While you have probably already answered this question if you are considering a rental investment property, it is important to know what you are getting into as a landlord and realize that not everyone has the time or knowledge of how to manage a property.
Fortunately, even if you’re not interested in overseeing the property yourself, there are still plenty of options. Many landlords today opt to hire a property manager to oversee their rentals for them. A good property manager will handle all of the day-to-day tasks involved with owning a rental, such as advertising, vetting tenants, collecting rent, and performing maintenance; freeing you up to focus on other things.
Learn more about the benefits of a property manager at Do You Need a Property Manager?
There is no ‘one size fits all’ perfect investment property. This is because your investment goals will be different from others, and the type of investments you are looking for will be different as well. It’s important to know ahead of time what your ultimate, long-term goals are so you can seek out investment opportunities that will carry you long-term. Then take the plunge, and start growing your investment portfolio.
Ready to invest? Let Renters Warehouse assist to make the process hassle-free. Our goal is to help make the journey of investing simpler and to give you the tools that you need for investing success. Get started today!
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