Given that inflation continues to increase year after year, it is wise to seek out ways to grow your savings or make your money work for you. One of the most effective strategies is by investing in real estate and converting them into rentals.
If you choose this route, you need to learn how to evaluate the right rental property to invest your hard-earned income. For new investors, this task can be challenging with the range of property types to select from. Since properties require heavy cash investment, it can be risky to make a poor choice. Continue reading for valuable tips on making the right choice.
Investors can research the major advantages and disadvantages of specific properties to avoid committing errors.
Key Factors to Consider When Choosing an Investment Property
Do a Neighborhood Survey
It is recommended to get familiar with the area where you plan to purchase real estate. Look at what potential renters you will be drawing in the area. Is it located near a business district, school, or a tourist attraction? You will know the type of demographic you will be marketing to.
When thinking about purchasing a condo unit, learn the HOA policies first. You might be restricted from renting out your unit. For some neighborhoods, the fees required from landlords are steep if they are considering constructing rental spaces.
Run a Property Tax Computation
With several expected property tax payments, you need to calculate how much you will pay before picking a property to invest in. Property taxes differ in different taxes. However, this shouldn’t be your sole basis since it is justified to pay high taxes as long as the rental market demand is also high.
If the tax does not match the demand, then it can be burdensome to purchase a property in an area that won’t deliver high returns and require heavy tax payments. Dropping by the municipality office can be a great way to review tax information. You can also ask the present neighborhood residents the ballpark figure they are paying for their property taxes.
Ensure you know the rate of property tax increases yearly since this can reduce the profits you will earn from renting out your property.
Check the Crime Rate
Security is a priority. Even if your rental is low and affordable, it can remain vacant if there’s a safety risk. A good property lends security. To know if the neighborhood you have an eye on has a safe reputation, visit a crime statistics website or drop by the police headquarters and local library.
Look into the kinds of crimes that are common and whether they have a serious nature. Look at the increase/decrease in crime rate. A good neighborhood has an active local police presence to promote safety. This is among the chief information to find out before thinking of financing an investment property in an area.
Look into the Job Market
You will want to invest in a property that offers great job opportunities since more people will want to stay in places where they can gain employment. Yuu can find out by visiting the local library or checking out the U.S. Bureau of Labor Statistics.
Notice that areas near business districts and large company headquarters attract many renters since it is better to live near a workplace rather than lose hours of commute to reach the office.
Be Curious about the Amenities Offerings
Walk around the neighborhood and check the following:
- Parks, restaurants, and shops
- Transportation hubs
- Local attractions
- Entertainment avenues
- Business districts
Visiting the city hall office lets you learn the features of the neighborhood. Knowing this beforehand informs you about the potential tenants and property buyers you will attract.
Know More about Planned Infrastructure
Again, visiting a municipality office can be beneficial so you can take tabs on planned projects to improve your area. If you spot ongoing construction, then this can be a hint of new infrastructures being built. This leads to more progress in the area.
You also need to be prepared for new competition since rental rates may go lower to capture a thicker slice of potential renters.
Know the Average Rental Rates
Run a test on how much income you will make from rental payments given the rental rate range in the neighborhood you have chosen. The costs of mortgage, property tax, and other associated costs of operating a rental must also be taken into account, which landlords often don't notice they are accruing.
How to Choose an Investment Property
Given the choices open to new investors, it can feel daunting to make a decision. However, starting with a single-family unit is a good idea rather than forking a large sum of money on a condo. With HOA fees to consider, the rental income can end up lower than anticipated.
With single-family properties, you also stand a chance of attracting more long-term renters compared to condo units, which generally attract short-term tenants.
Potential for Appreciation
Keep in mind that properties appreciate as the years pass, so your cash flow in the future can be higher than what you are receiving today. You can increase the value of your real estate by making property improvements so renters will think that the rental fee is fair. It will also make it easier to sell off and market a renovated property when the economy is on an upswing.
Bottom Line
There is no lack of outstanding real estate property in each city and state. You just need to properly conduct a proper assessment by researching things meticulously. Review the tips above and don’t expect perfection. It is also crucial to cultivate healthy finances so you can wait for the right renter to show up.
For dedicated support in finding the best property or managing one, contact Nelson Property Management today!
