There is more to buying a rental property than collecting your rent money. If you are thinking about getting into the landlord business, here are the things you should be looking for in a potential property.
Location is king
Location determines the types of tenants you can expect to get. Make sure it’s a place where renters are likely to look. Buying the home across the street from yourself may be difficult to fill if most of the homes in the area are owner-occupied.
Is this home in an area with good job prospects? People who have good jobs pay rent on time.
What’s the crime rate? You don’t want to deal with vandalism.
Are the schools good? This is especially important if your property is family sized. Buying in a good school district means that your home will be easier to sell if you decide to do that.
If you are managing the property yourself, make sure it’s located near you. Especially if you plan to take care of minor repairs yourself.
Will you receive a return on your investment
Will this home provide a good return on investment? Don’t forget to factor in extra costs like home insurance and property taxes.
When you are looking at the home, take into consideration whether major repairs will be needed soon. How old is the roof? How old is the HVAC system? Those two repairs along can easily stretch into five figures. Does the price of the home reflect the condition of the property?
When you become a landlord, you are the owner of a non-owner occupied home. Insurance rates for a home like this are higher, taxes are higher, and your mortgage interest rate is higher.
If you’ve considered all these added costs and it still seems this investment is profitable for you, then you’ve found a good property.
Plan for the future
Homes that have a high potential for investments today may turn out to have undesirable changes happen down the road.
One big change that could affect your bottom line is a rise in property taxes. If your municipality has a budget shortfall, homeowners are usually tapped to make up the difference.
Do you plan to renovate? Significantly improving the property means a higher tax assessment, which means higher taxes.
Review the plans for future development and land use. This information will be on file at your local city hall. Are they putting in a new highway? How are the empty lots around the area zoned for use? Make sure that no landfills or heavy industry are going to end up in your backyard.