Top 20 Tips For Buying Rental Properties
Today, many property investors buy a rental property or two to secure their financial futures, build wealth, and create a steady income stream.
For many beginner real estate investors, buying a rental property differs from buying your own home.
If you are a novice and a risk-averse investor, you may not want to invest your life savings in the stock market and face a bumpy ride!
Owning a rental property besides your primary residence can be a safe way to build a rental property empire.
Getting a checklist for things to look for in a rental property before investing is crucial.
Making poor investment decisions can lead to low returns or, worst still – heavy losses.
For a first-time investor with limited capital, trying to find the right investment property can be a daunting task.
Buying a cheap rental property in a poor neighborhood will not work for you and your target tenants.
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If you are thinking of investing and buying your first rental property to minimize your risk while maximizing your profit–then let’s look at what makes an excellent rental property.
Our goal at Noble Sky International is to help investors like yourself enter the US real estate market profitably and securely.
Here are the ten most important things to look for when buying a rental property.
What is the most important thing to look for in Rental Properties?
For rental property, the income approach is first and foremost based on expected cash inflows.
To decide on the property’s suitability or deciding between new construction or existing property, you need to determine if it is suitable for income-generating rentals.
Besides these, you need to look at the rental property regarding livability factors such as crime, amenities, education, and housing.
What To Consider When Buying Investment Property?
When you buy your first rental property, you may think it’s like buying another home that you can live in part-time.
That’s not the case per see.
For an investor, buying an investment property is a business that he can grow like a farmer.
You will want to own multiple rental properties and grow them like crops that multiply your wealth from year to year.
Buying a rental property can challenge a first-time buyer.
There are a lot of things to consider.
You will want to own a profitable rental property that generates an excellent steady cash flow for you – not to worry about using your rental to cover your monthly mortgage.
Best Suburb and Best Neighborhoods
Just like with any business address, your rental property’s location has a significant impact on your revenue.
Choose the right location for rental properties and since neighborhood and community change little, make sure you choose wisely.
Renters are looking for a home that provides a quality lifestyle.
A great tenant is often willing to pay more and might overlook specific rental units if the property is in a great neighborhood.
A right rental property is near
- excellent schools
- adequate transport systems
- shopping centers
- internet access
- water availability
- movie theatres
- Travel time to work
- Grocery stores
- community parks
- other essential amenities
To attract high-quality tenants and charge higher rent, you will need to have a rental property in a desirable location.
The long commute to work or a restaurant for a nice dinner can be a deal-breaker for long-term tenants looking for a place to call home.
Finding the best location for your rental property before you purchase it includes
- researching the area
- a site visit
- a tour of the community
check out whether it has public amenities that attract renters.
Safety and Security
Safety goes hand-in-hand with the location. A safe environment is a powerful motivator for great tenants.
No renter wants to live in a crime-ridden area. If you’re worried that it will break your car or home, it’s hard to sleep at night.
Renters find the best place to live based on the factors they deem necessary.
You can determine each state’s livability score by viewing the city, neighborhood, or address efficiently and then comparing it.
However, a lot of places may have hot spots of unreported criminal activity.
You will need to investigate on the ground to determine whether the income property you want to buy is in a safe and secure neighborhood.
Most tenants will check how safe a place is before they sign a tenancy agreement.
Adding an alarm service or another security feature for your existing rental properties is a cost-effective way to make tenants feel safe in any neighborhood.
Consider the Job Market
Americans are more than willing to move to these cities where there is a flourishing job market.
Major tourist attractions, IT business hubs, the computer industry, and construction-related industries remain the fastest-growing economic sectors.
If a Fortune 500 company announced moving to an area, workers would flock to the state and start looking for a place to stay.
The cities also show high growth as the real estate market continues to expand.
Locations with growing employment opportunities will attract more people to rent homes to stay close to their workplaces.
Rental properties where there are ample employment opportunities are more profitable.
Renters with stable jobs pay rent on time and stay long-term.
With an increased demand for rental properties, house prices may rise.
Every parent wants the best for their children, and quality education is at the top of many parents’ lists.
For tenants with school-aged children, the school district is a top priority.
Families like to rent a long-term home where the school district’s quality is an essential indicator of good neighborhood quality.
If you can get good cash flow in a good school district, then it’s a no-brainer.
However, sometimes those who don’t have kids make better tenants because fewer people create house issues.
Buying Rental Property – Is There Parking Available?
If your property is in a suburban area, plenty of parking may be available on the street.
However, parking is an essential consideration if your rental unit is in a dense urban environment.
Move-in Ready Condition
First impressions are lasting.
Once a first impression is made, it will probably persist in the tenant’s mind if it’s less than great. Everything from the electrics and plumbing to the windows and doors needs to be up to standard.
It could turn off an excellent prospective tenant if a property requires cleaning, carpeting, or painting.
Repairs in homes are disruptive and annoying.
If the home is in poor condition when the tenant moves in, the tenant will not treat the property well.
Rental property in a move-in-ready condition needs high cleanliness and maintenance standards that the tenant is expected to upkeep.
Unfurnished or Furnished Rental Property
As more tenants look for furnished rentals, you may lease a furnished home quicker than a vacant property.
For a start, you can buy the right second-hand furniture so that when the tenancy ends, you can use the table yourself or offer it to future tenants.
You can deduct a percentage of the cost of the goods from your tax liability.
Unfurnished – Standard property rental with no appliances or furniture included. Typically achieves the lowest rental amounts and often stays empty for long.
Part-furnished – Includes essential white goods, such as a fridge freezer, a washing machine, a microwave — the most popular type of rental.
Fully furnished – Fully kitted out with all standard appliances and all furniture. Popular as holiday rentals and commands the highest rental prices.
As a general rule of thumb, if it’s movable and plugs into an energy source, it’s an appliance.
Things classified as appliances would be an electric water heater, LED lights, and a shower. These are standard fixtures excluded.
- Washing Machine
- Air Conditioning
- Clothes Dryer
- Flat Screen TV
- Vacuum Cleaner
It’s no secret that tenants are rougher with things that don’t belong to them – so letting them know that any damage that occurs is their responsibility is essential.
Create an inventory for the tenant to sign with the tenancy agreement.
Get your property manager to run through an inventory list with them during their walk-through and make sure they sign against each appliance.
Your property manager should take photos with a time and date stamp where possible.
They will clarify that any damage to the appliances or repairs shall be at the tenant’s cost.
Age of Rental Property
You wouldn’t want to get an older property.
Older buildings generate more claims than profits compared to younger properties.
An aged property means tiresome breakdowns, costly repairs, and a vast annoyance to the tenants.
The big-ticket items that you will be on the lookout for include
- Pest Control
- Plumbing (sink repairs, toilet repairs, and installation, bathroom remodeling)
- Electrical (aging electrical systems, electrical maintenance, light fixtures)
- HVAC systems
If you want to avoid the hassle of tiresome repairs, give a cheap rundown rental property a miss.
However, you can still attract good tenants with an older but well-maintained property, making the repairs and keeping it functional and clean.
Rehabs, Renovations, and Upgrades
You wouldn’t want to upgrade just for the sake of upgrading.
Any return on upgrades is likely to differ from property to property.
Many variables impact rents when we look at the Cost vs. Value
- age of the building
- tenant profile
Productive improvement costs for best ROI winners are where you can see rent grow from 10 percent to 30 percent, include
- installing wood (or wood-like) flooring
- kitchen upgrades (backsplash or updated cabinet hardware)
- bathroom upgrades
- central air conditioning (warmer climates like Florida)
Interior Layout, Open Floor Plan, Storage
Interior design is both functional and aesthetically pleasing.
Open floor plans mean removing an unnecessary wall or a closet in the bedroom.
These changes can make the rooms and the entire house appear more spacious.
Alternatively, you can offer storage units outside the rental property for tenants to store large and seasonal belongings and exercise equipment.
Tenants appreciate more space within their homes to move about and entertain guests, creating a more enjoyable living experience.
A rental property gains big plus points with a private backyard, patio, or balcony.
A small space to enjoy the sunshine and fresh air, attract more tenants, and an opportunity to select the very best and possibly charge higher rental.
Ideally, an excellent landlord-tenant relationship requires both parties to be courteous, cooperative, and respectful.
In most cases, a good landlord attracts good tenants.
Experienced property managers who recognize those expectations or make specific promises need to follow up.
As good tenants expect to keep your end of the bargain, breaking their trust sours every relationship.
As a landlord, you need to be present.
Most tenants detest the Absentee Landlord that
- never communicates
- never answers the door
- shows up when it’s time to collect rent
Another pet peeve is the Nosy Landlord, who micromanages everything and wants to know everything about the tenants’ lives.
At Noble Sky, we hire professional property managers to communicate positively with prospective renters.
Renters appreciate and want a Landlord with these traits
- Timely Maintenance
- Keep an Appropriate Distance
Low Vacancy Rate
Vacancy rates are an essential determinant for property owners.
These rates are economic indicators of the broader market conditions.
Low vacancy rates are favorable as this means people want to live in a particular area, while higher rates mean precisely the opposite.
In real estate, the vacancy rate also represents rental homes that are
- vacant and ready for rental
- properties turned off upon the exit of a tenant
- homes under repairs or renovations
- rental properties rentable
Suppose a community has a high number of vacancies. In that case, it may mean that the area is declining, has too many listings compared to the demand (intense competition), or has a seasonal rent cycle.
It’s smarter to buy income rental properties in neighborhoods with low vacancy rates as these allow landlords to increase rents.
A community with a high number of vacancies means the area is declining.
Too many listings compared to the demand means intense competition.
Tourist attraction areas have a seasonal rent cycle.
Low Insurance Costs
Landlord Insurance is like a homeowner’s policy and typically helps cover the rental property if there’s damage from a fire, lightning, wind, hail, or another covered loss.
Insurance costs can eat into your profits for rental property.
You need to know if the area you want to invest in is prone to natural disasters.
In these disaster-prone areas, the rental property may not be worth it for high insurance rates.
It would be best if you found out how much insurance will cost before you invest.
Condition of Property
Ideally, you want to buy a rental investment property with a quick turnaround.
You will want to buy an investment property in excellent condition and not a fixer-upper for rental properties.
An income property that needs many repairs and isn’t rent-ready could cause you a period of delay before you collect your first rental cheque.
A property that needs minor repairs before it is ready for occupancy can still be a lucrative investment.
Just remember, you will need to make the repairs cost-effective and quick.
Before you decide, always hire a professional inspector to view and give you a detailed report on the property’s condition.
Reasonable Property Taxes
Low property taxes are one of the profitable features of an investment property.
You get to keep more of your monthly rental income when you don’t have hefty property taxes reduces your profits.
We typically find higher property taxes in metropolitan areas.
In rural areas, property taxes are lower.
Be sure to check the local tax information before investing.
Good Return on Investment Starts with Good Rental Rate
It is easier to find a rental property in America than in Asia that abides by the 1% rule.
If your total purchase price of an income property is $100,000, the rule of rule-of-thumb states that the monthly rental income should equal or be greater than 1% – $1000
Ensure that your target investment property will generate rental income sufficient to cover your taxes, insurance, and other expenses.
You can estimate the expected rental income by researching the current rental rates of similar properties in the vicinity.
Remember to calculate real estate ROI metrics like cash flow, cash on cash return, and cap rate to know that your rental property generates a good investment return.
Investment properties in growth areas appreciate faster; you will make a good capital gain profit if you sell.
Future Developments around your rental property mean that there will be more jobs, which translates to more potential renters.
Proposed improvement projects like infrastructure development, parks, and malls usually indicate that the location receives a high economic growth rate.
Managing & Buying Rental Properties
Dealing with tenants, collecting rentals, and being available to deal with concerns and maintenance issues raised by tenants can take a toll on you.
If you live in Asia, you can be an absentee landlord but may not fix maintenance issues for tenants quickly.
Over time, minor annoyance can escalate into big problems that are more expensive to deal with amicably.
For a beginner real estate investor, this problem may seem impossible.
However, at Noble Sky International, we hire a property management company to manage the property on your behalf.
The small percentage of property management costs may well be worth it.
Key Takeaways Before Buying Rental Property
- Research and vet the neighborhood for livability and amenities.
- High vacancy rates are not a good sign – look for unkempt signs.
- Get a sense of the current market value and average rent in the neighborhood.
- From here, work out to determine if buying a rental property is financially feasible for you.
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Thank you for sharing your blog. Keep on posting.
Thanks IHL for your encouragement!