Investing in a rental property is a great way to create an alternate stream of revenue for yourself. This could even be a great way to supplement your retirement plan. The thing about rental properties as an investment is that only some properties actually make a good investment. What is it about a property that makes it ideal as an investment rental property?
Defining Factors of a Successful Rental Property
Here are the key aspects that you will need to consider when purchasing a rental property.
If you have even considered investing in property, you have no doubt heard how important the location is, and that is completely true. The location of a rental property will be a huge factor in its marketability, vacancy rate and much more.
While you may find the low price of a property in a low income area very enticing, you may not find that the property will actually end up being a success. In this situation, you are likely to see a higher rate of both vacancies and evictions. If the school system is suffering or the area has a high crime rate, the cost to you may be significantly more than choosing to pay the higher property taxes of a better area.
You have to balance what amount of rent you can charge with the amount that you need to pay out to keep the property running. You must also consider other factors as well, though, as they may dramatically influence your figures. For example if your tenant turn over rate is fairly high and you often have damage when rehabbing the unit for a new tenant, that is a large hit to what you might mistakenly consider profits on the unit.
The condition of the property is only second in importance to location. If a property has been well maintained and kept in good condition, not only will this end up saving you money for years to come, but odds are, the property likely has a good reputation as well. On the flip side of that coin, a property in poor condition is a sign of many, likely far deeper problems. Not to mention a likelihood that the property has developed a bad reputation as it is in ill repair.
When it comes to problem properties, there are actually situations where the price can not be low enough to sell the property. A distressed property can in some cases actually cost you money. If it also happens to be in a bad area, you could find yourself stuck with a property. This could take a huge upfront investment and years to turn a profit from.
Property management is a full time job. When you purchase a rental property, you will need to either commit to running it full time or you will need to hire a property management company. Many people choose to hire a property management company. This is because it makes owning the property a passive investment as opposed to an additional responsibility.
It is also important to note that many property owners choose to hire management companies because property management can become complicated. Especially when dealing with laws and codes specific to the city and state.