Ten key characteristics of profitable rental properties
Are you looking for a rental property to expand your investment portfolio? Investing in real estate can be exciting and very profitable if you make the right decisions. California real estate continues to be hot and commands high monthly rent, making it an attractive place for investors. Utilize the services of real estate agents in Pomona, CA, who can guide you toward the right investment.
The potential income and rewards from real estate investing are enticing; however, it can also be intimidating to new investors. Real estate is a tough business, a field full of landmines that can destroy your bottom line. That’s why it’s important to do your research and understand the ins and outs of real estate investing before taking the plunge. Here are the most important points to consider when buying an investment property.
Before hiring professional realtors in California, start your real estate search. Agents can find the best investment for you, noting that investing requires research skills and savvy; however, you should also be prepared with your own insight into the market.
By proactively using this research, you can narrow down the key characteristics you need for your property, such as type, location, size, and amenities. Once you’ve done this, you can ask a real estate agent to help you through the buying process. Location options can be limited based on whether you actively manage the property or want to hire someone to manage it. When you want to actively manage your property, you probably don’t want to own a property that is too far from where you live. Proximity is less of an issue when a property management company takes care of you.
Here are the top ten things to look out for when investing in real estate
The property purchased determines the type of tenant and the vacancy rate. Buying close to campus allows students to dominate the pool of potential renters and compete each summer to fill the rental market. Therefore, buying a property near a university can lead to significant profit.
Property taxes can vary greatly depending on the area covered, so it’s important to know how much you’re paying. High property taxes are not necessarily a bad thing if the area is in high demand and the taxes are used for the community. All tax data is stored in the city accounting department. Therefore, find out your anticipated taxes before buying a property. In addition, you can consult with local owners and find out if property taxes are going up soon.
When deciding whether to buy a family home, you should consider the quality of local schools. While monthly cash flow is the main concern, the total value of the rental property will be significant when the rental property is eventually sold. Not having a good school can affect the value of your investment in the future.
Nobody wants to live next to a crime center. Your local police should have accurate crime statistics in your area. Don’t forget to look at vandalism rates, primary and secondary crime rates, and whether crime has increased recently. Also, ask how often the police are in the area.
Places with more job opportunities attract more tenants. To find out how many job openings are available in the area, check the US Bureau of Labor Statistics (BLS). Look for announcements of large companies that are relocating. Oftentimes, employees will actively move to that location in search of housing.
Walk around the neighborhood and discover parks, restaurants, gyms, movie theaters, public transportation, and all the other amenities that attract renters. The local lifestyle will attract residents and provide higher, more consistent rents.
A town’s planning department will be familiar with regional development plans. When considering a region, investigate if future development is planned. Oftentimes, this is an indication of a growing area and one likely to increase in demand. If there is a lot of construction, it is probably a good area for rising property prices.
Number and availability of rentals
An unusually high number of rental units that are available in the area may indicate a seasonal cycle or downturn. In both cases, high vacancy rates force landlords to lower rents to attract tenants. Not only does this cut into profit, but it can lead to additional issues down the road. Whereas low vacancy rates allow landlords to raise rents and generate profit.
Since rental income is your livelihood, you need to know the average rent in the area. Consider a property that will allow you to pay enough rent to cover your mortgage payments, taxes, and other expenses. Take a close look at the real estate field to see where it’s headed in the next five years.
Insurance is another expense that should be deducted from your income. The cost of insurance coverage can reduce your rental income if the area is prone to earthquakes, floods, or other natural disasters.
Before you make a purchase, be sure to thoroughly research the area. Official sources are great, but to get real information, you need to talk to local residents. Tenants will be much more honest about the shortcomings of their neighborhood because they are not invested in their neighborhood. Visit the neighborhood at different times of the week to see your future neighbors.
Selection of features for investment real estate
The best investment properties for beginners are usually single-family homes or condos. The apartments are maintenance-free, as exterior repairs are done by a contractor, leaving you to worry about the interior design.
However, rents in apartment buildings are lower than in single-family homes. Additionally, single-family homes tend to attract long-term renters. Families are considered better tenants than singles because they are often financially stable and can pay rent regularly.
Once you’ve narrowed down your area, look for properties with excess potential and good cash flow projections. View both expensive and affordable properties. To find out the true market value in your area, look at other properties and check the final sales prices in city records. For potential key benefits, look for properties that attract tenants who can pay higher rents for minimal exterior changes and minor renovations.
Determination of rent
How is potential rent determined? Do not make optimistic assumptions.
If you set the rent too high, the gross profit will disappear quickly. Start with the average rent in the area and work your way up. Ask yourself if your home is worth the higher price and why. Calculate the true value of the property to see if a rental is useful to you as an investor.
To get a rough idea of your profit/loss, take your monthly rental income, then subtract your expected monthly mortgage payments, property taxes divided by 12 months, insurance premiums divided by 12, and monthly maintenance/repair allowance.
Do not underestimate the cost of maintaining real estate. These costs vary depending on the age of the property and scheduled maintenance. New buildings will likely need less work than older buildings. Housing in senior living communities may not suffer as much damage as those within college campuses.
Doing investment property maintenance yourself will also save you a lot of money, but it also means you have to be available 24/7 in case of an emergency. Another option is to hire a property manager. A real estate company will take care of everything from a broken toilet to collecting the monthly rent. But you will have to pay about 10% of your gross rental income for these services.
Trends: the best time to buy a house
When buying a home, always think about who else is interested. Buying real estate is, first and foremost, an investment. Even if it feels like you’ve lived at home forever, you never know how your plans and circumstances may change in the future.
A few other things to consider when buying a home are location, location, and location.
Consider the location and traffic so that you (or your future resident) do not get stuck in traffic for several hours. Take into account the traffic in and out of the city every day. Going out of town is also important. Keep in mind that your schedule may change.
Also, how far are shops, clinics/hospitals, pharmacies, and ambulances? If you are planning or already have a child, is there a school or kindergarten nearby?
In terms of the location, what’s the landscape like? If you want to live closer to nature, then there should be fields, water, and forests.
Additionally, consider the neighborhood. Who lives next door? Is the building abandoned? Are there areas of crime? Do you need to spend more on security systems?
Also, look at environmental conditions. Walk around the house you want to buy. Check for wetlands, sewage treatment plants, or sewage problems nearby (for example, if there are other properties nearby or holiday homes under construction).
Imagine what your ideal home would look like and go forward with an investment property.