Tag Archives: rental properties

How to Find a Rental Property in an Expensive Market

Investors venture into real estate hoping for long-term passive income. Rental income is capable of providing consistent passive income, but real estate investment can be risky. Buying at the wrong time may cause you to lose a significant amount of equity.

If you are a newbie rental property investor, you may want to keep your day job as you learn the ropes of real estate investing. Start by doing research on healthy markets then establish realistic estimated profits and rent prices. Experts recommend that you invest enough in the properties so that you can have a positive cash flow. This way, you will not have to spend your income to run the business.

Currently, it is difficult for newbie homebuyers to buy houses because most of the affordable ones are under negative equity. 18.8% of mortgaged homeowners in the U.S are underwater and cannot sell their homes without cash at the closing table. Because of this and expensive national rents, families have to rent at very high costs. The market may be ideal for landlords but not for rental property buyers.

To engage in bidding wars, you will need a lot of money. Fortunately, some of the areas where properties are most expensive are highly demanded by renters. Be a smart buyer and buy properties in locations where both the rent and demand for rental houses are high. Properties in expensive locations have a high chance of appreciating in value and so long-term investment guarantees profit.

If you do not have enough capital to buy rentals with cash, you should either invest in cheaper buildings or wait to buy. Do not go for prized properties, opt for working class neighborhoods instead where the rent is moderate. Before you buy rentals, plan your property management strategy carefully.

Some property owners, especially those with handyman skills, may decide to run the entire business on their own, from emergency upgrades to tenant requests to signing leases. This strategy may seem cost-effective, but it is not beneficial for all rental owners.

Some may have to hire property managers. Begin searching for rental property 3-6 months before you plan to buy. This timeframe will allow you to research the market and understand the current values. You can search online, or physically visit the units.

If you do not have the time, hire an agent. When choosing a rental property, look for the qualities you might want for your own home. What appeals to you will appeal to renters. When you are an onsite homeowner, you will understand what it is like to live in your property and make the necessary improvements.

Moreover, you will have access to affordable financing. Before you close on a home, invest in an inspection; and if upgrades are required estimate how much they will cost before you buy. Make the necessary upgrades immediately after buying for the safety of your tenants and to attract renters. 

How to Pick the Ideal Location for Investment Properties

A great location will ensure that you have an easy time attracting renters and give you high financial rewards. Although people will have a different definition of the best location, a great investment location should appeal to your target market and be profitable for you. In this chapter, you will learn about picking the best location for your investment.

Real estate investment is like any other business. Therefore, demand and supply determine your profits. The ideal business should offer something that everybody wants or needs (high demand) and what it has to offer should not be easy to replicate (limited supply).  A real estate investment can only be successful if the tenants have good jobs. Understand the job market of the area. Consider the following:

  • The number of jobs; is the number increasing or decreasing?
  • The median salary; is it increasing or decreasing?
  • The types of jobs; low-paid laborers, high-tech or professional?
  • Diversified jobs; a stable variety of job sources or 1-2 main industries?

Population Growth

People are always moving to locations with better jobs. They are also attracted by things like natural attractions, weather, local politics, and the price of housing. 

The ideal location for real estate investing is one with an increasing population. The price/rent ratio is a great and easy way to evaluate the profitability of an area. 

The rent/price ratio is determined by dividing the median price by median yearly rent. For example, if the median housing price in an area is $200,000 and the median yearly rent is $15,000, then the price/rent ratio is $200,000/$15,000 = 13.33. A location with a high rent/price ratio is not good for business.

Small Scale Location Criteria

Convenience

You have a better chance of success if you own properties where many people would like to live such as near a major economic center. Romance, in this case, is something that makes people emotionally attracted to a location. The decision on where to live is based on emotion. 

Romance, depending on place, includes:

  • Proximity to green spaces and parks
  • Streets lined with trees
  • Beautiful scenery, etc.

Romance differs with the location and you will have to physically visit a location to find out. Walkability has been associated with more price resilience and higher property appreciation.

This is truer for metro areas than for rural areas and small towns. Everyone wants to live in a safe place. Avoid the worst areas, regardless of what they promise on paper. There are several sites online such as https://spotcrime.com/ and https://www.trulia.com/local/ which can give you the necessary statistics.

School Districts

Just like crime, you can find most information online, however, make sure you visit the area too and talk to the locals.

Public Transport

Proximity to public transit is an important factor in urban areas. Search Google to find public transit routes to help you in your research. Your attorney should share any CCRs (covenants, conditions and restrictions) when you are buying property. They are useful but can be limiting at times. 

Local Laws, Finances, Taxes, and Infrastructure

The local government will influence your investment. Pay attention to eviction laws, property taxes, rental laws, licenses, municipal services, and rent controls.