By Simone McFarlane
The first step when looking for an investment property is to identify your requirements. Are you looking for a place close to your home or office? Do you want an investment that has the potential for long-term income and growth? Do you need it ready-to-rent or do you prefer it self-owned?
There are several different types of properties that investors like you might choose from, such as apartments, co-ops, condos, duplexes, and single-family homes. Each type of property has its own unique advantages. Read on for some pointers from Sensible Property Group.
Location Is Number One
Mashvisor notes that your first consideration, of course, will be the location. A desirable location is key to getting a great return on your investment. It determines the amount of rent you can ask for and the vacancy rate you’re likely to experience. Quality schools, a robust job market, and access to public transportation are all part of what makes a rental property succeed. Other considerations are the availability of parks, restaurants, shopping centers, medical centers, and entertainment venues.
Your Return on Investment
Since owning rental property is a passive investment, the return on investment (ROI) for each property needs to be calculated. You can do this by performing an analysis of the costs and revenues for each property and comparing them with other properties of similar or comparable size and quality.
Stessa explains that the ROI is calculated using two key factors: the annual net operating income and annual expenses required for the property, including utilities and taxes.
The goal should be to calculate the expected net return on investment and how long it will take for the property to generate income.
Do You Have the Time to Manage It Yourself?
Advertising your property, interviewing potential renters, running background checks, performing maintenance on the property, and making repairs as they are needed can take up a lot of your time. If this is to be your full-time job, or if you’re retired and are handy, then you can probably manage it yourself.
You should consider purchasing a home warranty policy, though. You may ask, are home warranties worth it? But consider that homeowner’s insurance won’t cover repairs to major appliances and systems. Renters may not be as careful with those things as a homeowner would be, so the chances of repairs being needed are increased with rental properties. If you want coverage in case home systems or appliances break down, then a home warranty can be beneficial. Before deciding whether to get a home warranty, check the home inspection report for any red flags and check if there are any existing warranties on appliances and what they cover.
Having a list of nearby contractors that specialize in various types of repairs is also a good idea. As an example, you’ll want to call out a professional for urgent water heater repair needs should the unit break down. Keep in mind that the typical cost of repair runs between $221 and $964, though minor repairs may only run around $100. The project’s cost depends on a number of factors, including whether it’s a gas or electric unit.
Choosing a Management Company
Rental management companies are there to help manage investment properties. They help find tenants, collect rent on behalf of individual tenants, and collect payments from landlords. They also manage maintenance and repairs.
When choosing a management company, make sure they are full service. It’s also important to get referrals and follow through on contacting each one. You may find a local agency a better fit since they have relationships with local contractors. And finally, ensure the company you use is licensed for the state in which your property is located.
The Business Side
Rental ownership is an investment, not a business if you do it to earn a profit, but don’t work at it regularly and continuously—either by yourself or with the help of a manager, agent, or others.
However, you may want to protect yourself and your assets from litigation by establishing a limited liability company for your investment property business. In order to form an LLC, you can hire a lawyer or use a formation service which is considerably less expensive.
Rental property is one of the most lucrative means of investment as long as you’ve done your research and used a good real estate firm to help you choose the properties that will work best for you.