There are many good options, but one of the best ones—as investment properties go— would be single-family rental homes. Single-family rentals are in high demand, putting out record numbers of renters on the market. They also have additional advantages like long-term residents and the ability to appreciate over time. The most challenging part about having rental properties is probably finding a great bargain in an expanding market. But don’t jump into purchasing that rental property just yet even though you think the deal is really great for a property in Pillager. Before making that decision, 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 the property carefully to make sure there is no hidden damage or that there is no need for major repairs. Unless you were looking 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. Other things you need to know to include how many other rentals are nearby, what the usual rental rate is for properties like the one you want, and if those 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?
Location and price are important, but you shouldn’t neglect to 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. Remember to include all costs on top of the sale price; things like property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the property 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 house you want to buy doesn’t give a good return, move on. There are a lot of other properties out there.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, bargain properties can be difficult to find. This is where being creative and having a vision can help. Real estate investors can take a look at the deals that others have passed on and still see quality rental homes. To get that good deal, you can add value to a property, and there’s a lot of ways to do that.
For instance, upgrading the interior with modern flooring or new appliances. Another example would be to add a second bathroom to a home that has only one. Some houses have dens, sunrooms, carports, or other areas that can be converted to increase the property’s total square footage. The renovation wouldn’t be expensive and can be done quickly. By applying this, you are adding value to your rental property, and that can give you the positive cash flow you want.
5. Does the property fit into my niche or area of expertise?
A common thing new investors do is make the mistake of buying property in Pillager because the price seems really low. It may seem like a bargain but that may not always be true. Another mistake would be to rush because they promised themselves to meet a certain deadline for their next purchase. But you’ll meet a lot of problems if that bargain property is outside your wheelhouse or if you feel pressured to make the purchase despite seeing some clear warning signs.
It’s a smart move to develop a deep understanding of one niche or segment of the market so that you could judge for yourself whether or not an investment deal is truly a great deal or if it’s just 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.
Even though everyone seems to be buying now, that does not mean you should follow them. When you have a prospective property, makes 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?
Great rental property investment 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 have the skills needed to manage the property yourself, the next thing to ask is if you are available to tackle any midnight emergencies or repairs that may arise.
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.
Don’t rush to purchase that rental property in Pillager. Instead, make sure that you have the best and most recent information available. Real Property Management Deluxe offers a free rental property assessment. The results of which will give you the needed information to reach the best decision. Take advantage of this valuable service by contacting us online or giving us a ring at 218-454-7962 today.
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