It is no secret that interest in real estate has exploded over the last decade. There are more people investing in real estate than ever before. Most of the shows we see on TV are dedicated to quick flips and rehabs, but there is another way to invest in real estate. All it takes is just one quality rental property to generate monthly cash flow and build your portfolio. What makes rental property investing so great is that anyone can do it. You don’t have to be an “investor” to buy a rental property. However, there are a few key items you need to look out for. It is important to remember that not every property you purchase makes a good rental. Here are four tips in buying a quality rental property.
Focus on Location. In many respects buying a home and renting a property are similar. Buyers, like renters, value location almost as much as price. Getting a good deal on a rental property doesn’t do you much good if you can’t find tenants. Everything with a rental revolves around your ability to fill vacancies. The right location will keep your property filled and help maximize the rent received. If you are just starting out you are better off paying a little more for a property in a better location than jumping at a bargain in a struggling area of town.
Think Long Term with Improvements.Owning a rental property doesn’t mean you can simply put a Band-Aid on the repairs and hope for the best. Getting a discount in a good location probably means there is work to be done with the property. What you do with that work can make all the difference in the future. If you decide to look for cheap, quick fixes you can fill your vacancy in just a few weeks. However, you are always better off spending on value, doing the right work and thinking about the long-term health of the property. With the right improvements and updates you will have less headaches and tenants who want to stay as long as possible.
Layout & Bedrooms.It can not be stressed enough that not every property makes a good rental. As obvious as it sounds people need to be able to live comfortably in the property. One of the most impactful items on rent price, livability and demand is bedroom count. The difference between a two and three-bedroom rental can literally be hundreds of dollars every month. As you look for properties you should look only at three-bedroom units or places where you may be able to add an extra bedroom. You also need to consider the layout and flow of the unit. Knocking down a wall in the kitchen or living room can change the look and feel dramatically. People desire space and flow now more than ever.
Know Your Numbers.Cash flow is the amount of rent received minus the total monthly expenses for the property. Novice investors will only subtract the total mortgage payment and any utilities they may be paying. This number will give you a good idea of the cash flow, but not the real number. There are a handful of seemingly hidden expenses that must be calculated. You must factor in the cost of lawn care, snow removal, quarterly utilities such as water and sewer, town application fees and seasonal maintenance. You should also have an ample reserve fund in the event your dishwasher stops working or your tenants stop paying. Knowledge of all numbers and expenses associated with the property is a must if you want to be successful.
Just one rental property can set you up for the foreseeable future. Before you consider making an offer you should consider these four important tips.