Looking for an investment property isn’t quite the same as looking for your primary residence. Different factors will influence your decision.
To better narrow down the range of options that will be available to you as you build your real estate investment portfolio with a rental property, you’ll need to ask yourself a series of questions.
The right questions can help you guarantee a successful return on investment (ROI) for your rental. Here’s what you should be asking as you seek out that new property.
1. Are you drawn to the location?
The first question you should ask yourself when investing in a rental is: are you drawn to the location? This is fundamental because it will help keep your rent rates stable and your units filled.
An ideal rental property will be in a location that people want to live in. Curb appeal is a factor, as are nearby attractions like parks, recreation opportunities, and businesses. Your ideal location should be a place you don’t want to leave.
2. What does the property have to offer?
Next, ask yourself what the property has to offer. This consists of much more than just the location.
Every property possesses its own unique features that make it stand out from others on the market in one way or another. This might mean that the home features a hot tub, plenty of storage space, or a large kitchen.
Additionally, any other home or unit amenities included in the property can represent a point of value for future renters. Consider features like fencing, washer and dryer hook-ups, and more.
3. What is the neighborhood like?
A big part of any property’s value comes down to the surrounding area. You need to ask yourself what the neighborhood is like before you go investing in a rental property.
If crime rates are high, renters are going to avoid the area or expect to pay less. Meanwhile, the type of crime that occurs in a location can get lost in translation, leading neighborhoods to get a worse reputation than they deserve. You still might earn a good ROI in such a neighborhood, if you can show renters the facts.
Regardless, the location should have low enough crime and good enough schools to attract renters consistently.
4. Are there any problematic HOA restrictions?
Often, investors neglect to look into Homeowner’s Association (HOA) guidelines for a neighborhood until too late into the investment process. But HOA restrictions can damage the potential of your unit, so you’ll need to pay attention.
For example, some HOAs entail additional checks and even interviews before they approve a new resident in a neighborhood. These exclusionary practices can be off-putting to renters and can even be discriminatory.
Avoid any potential problems by asking yourself about HOA restrictions when looking at a property in a neighborhood where an HOA exists. You’ll be glad you did.
5. Can you expect a good rate of turnover in the local area?
Finally, you’ll need to ask if the location of your rental property is liable to have enough population turnover to ensure a consistent market of renters. A location with higher turnover is a good market for rentals because temporary circumstances make renting more desirable than buying.
Examine neighborhood turnover rates as you investigate potential investments. This will be the number of homes over the number of homes sold in the area. If the rate of buying and selling is higher, it shows more fluidity in the market. This is good news for landlords.
College towns, neighborhoods near military bases, and urban growth areas are all sought-after markets for this reason. Choose a property in a location guaranteed to have consistent appeal.
In conclusion
Looking for a rental property to purchase can be a long and arduous process. After all, a rental property is a big investment and you’ll need to pay attention to the details.
Start by asking yourself this series of questions. From location appeal to neighborhood turnover rates, you’ll be able to paint a clearer picture of the market and better predict how it might perform. From here, you can maximize your success as a rental owner.
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