As investment properties go, there are many opportunities you can get into, but one of the best opportunities would be single-family rental homes. With record numbers of renters that single-family rentals are putting out on the market, it has become an investment with really high demand. They also have other pluses, like long-term residents and the ability to appreciate over time. The part that would be the most difficult for those who want to own rental properties may very well be looking for a great bargain in an expanding market. However, don’t pull that trigger just yet, especially if a deal seems too good to be true. Before you purchase a rental property in River Park, it’s important to ask yourself six key questions.
1. Why is the home listed at the current price?
A good deal on an investment property often starts by finding properties listed below market value. However, just because a property is listed at a good price, it does not mean you’ve struck a great bargain. You need to know the reason behind the price. Check to make sure the property doesn’t have any hidden damages or needs major repairs. Unless it’s part of your plan to invest a large sum of money into fixing it up, you’ll want to avoid a property like this. Anything spent making the property habitable must be factored into your rental margin, so why the property is underpriced matters.
2. What is the state of the local real estate market?
No matter where the rental property you plan to purchase will be located, you still need to do your research on the neighborhood and local market first. Some of the things you need to look into are: how many houses nearby are rentals, what the average rental rate is for properties similar to the one you want to purchase, and whether the rates have gone up or down recently. Crime rates, nearby amenities, access to public transportation, the local job market, and more are also important aspects of a rental’s location. The best places tend to have a moderate number of single-family rental homes that have relatively low market values but comparatively high rents.
3. What is your expected rate of return?
In addition to making sure the rental you want to buy has a good location and price, you should also calculate a potential rental property’s rate of return before making an offer. The rate of return, or capitalization rate, is different depending on the place, but it normally falls between 4% and 10%.
To compute for the capitalization rate for a potential investment property, calculate your net operating income (rent minus expenses) and divide it by the home’s sale price. Don’t forget to include the expenses on top of the selling price. Include the property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the house is in an area prone to natural disasters.
Usually, it’s a good rule to keep total expenses to about 50% of the gross rents – this is known as the 50% rule. If the property you wanted to get doesn’t offer a good return, go for another deal. There are a whole lot of other properties out there that offer better deals.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, bargain properties aren’t very easy to come by. This is where real estate investors with vision and creativity can be a step ahead because there are good deals out there that others may have passed up but actually have the potential to be great rental homes. All you have to do is to add value to a property and you can get that good deal.
For example, you can upgrade the interior with modern flooring or new appliances or place a second bathroom to a unit with only one. There are houses with dens, sunrooms, carports, or other areas. These areas can be converted to increase the property’s total square footage, and the work can be done fast and inexpensively. All this updating and renovating is actually adding value to a rental property. What this helps do is achieve that positive cash flow you need.
5. Does the property fit into my niche or area of expertise?
One big mistake that new investors usually make is to buy a River Park property because the price is low. They may think they’ve found a bargain but that isn’t always the case. Another thing that may rush new investors is by imposing on themselves a certain deadline for their next purchase. But problems can crop up anytime if that bargain property is not part of your area of expertise or if you’ve been pressured to buy a property that has clear warning signs.
It would be prudent to develop a deep understanding of one niche or segment of the market. This way, when a great deal on an investment property comes up, you can make the judgment call whether or not it’s too good to be true. Similarly, waiting for the right deal to come along is also important. Patience is a virtue that is crucial in investing in rental properties.
Just because other investors seem to be buying now does not mean you have to. When you have a prospective property, make sure it fits in your specialty and helps you reach your goals. Staying focused on this would help you stay away from committing any of the common investing mistakes.
6. Who will manage the property?
A successful rental property is also one that appreciates over time. But to be certain that your property keeps growing in value, you should have it managed by an expert who you can trust. If you do have the skills to do what it takes, then you have to ask yourself if you have the time. You need to be sure you can handle any midnight emergencies or repairs.
If you want to have your property managed by a professional or if you don’t live near your rental property, then you’d want to get a property management company to oversee your property for you. Find one that will work to achieve your investment goals. Professional property management companies like Real Property Management have grown to become a reliable, nationwide resource for rental property owners like you.
Make sure you have the best and most recent information available before you decide to purchase any rental property in River Park. Real Property Management Platinum offers a free rental property assessment. The results of which will give you the needed information to reach the best decision. Make use of this valuable service by calling us at 559-324-9400 or contacting us online today.
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