Owning a rental property is the right step to increase the coffers of your wealth. It is better to know some tips quoted from property experts before buying a property.
The existence of property make it easy for you to get passive income, without the hassle of working from day to night.
If you’re currently have the money collected and want to find a house to rent out, it is important for you to pay attention to some of the criteria’s that make the rental house has value in the tenant’s eyes.
Why is it Important to Find The Right Rental Property?
Choosing your first rental property is very crucial in a long term. The right property will give you stable rental revenue.
You don’t want your money wasted on bad property which nobody want to rent and slow growth of the property value.
Buying a property requires a long commitment where it has a huge cost and responsibility as a landlord.
The important criteria that we will explain below will greatly influence the amount of public demand for these rental homes.
Tips for Buying Profitable Rental Property
Let’s check out at these 11 tips of buying a profitable property for investment!
1. Find the Right Location
The property that you own isn’t going to move to a better place by itself. Hence, it is crucial for you to choose the right location in the beginning.
The location of the property need to be strategic. Your property should near to shopping centers, malls, public transport, health facilities, and so on. All these accessibility will determine the price you can charge to your tenant.
If you have a property that is very prone to natural disaster such as floods, it will greatly affect the value of the property and the costs you have to pay.
Tenants can loss their interest in renting your property and eventually move on to other properties.
In addition, a disaster-prone location requires that you incur additional costs for property insurance, if one day the property gets a disaster.
These additional costs must be very influential on the rental income you will get from the property.
Tips: You can ask the neighborhood if this area has flooded before.
Besides, the environment or location where the property is located will also affect the type of tenant who will rent, which will be discussed on the next point.
2. Determine Who is your Potential Tenant
If the property is located around university, then students will become your potential tenants. If it’s nearby office building, your potential tenants will be working adults.
If students are your potential tenants, chances are you need to struggle to find a new tenant more frequent!
A degree would typically just take around 3 to 4 years. As per statistic data, students are more likely to change their living place after their first year on university.
A survey conducted for 100 students, around 70 percent’s of them change the renting place because they have found new friends and choose to stay together with them.
Unless you’re setting up a few years contract for them to stay, they’re more likely to leave your place within the first year. However, bear in mind that none of them will be happy with few years contract commitment.
When you choose a property that near an office building, you’ll definitely will get working adults as your potential tenants.
According to the data, working adults tend to stay longer than students. This might be due to several factors such as they’re more stable and committed.
Predict Potential Tenant’s Financial Status Based on Location
Either your potential tenants are students or working adults, you need to pay attention to their financials’ capability.
The easiest way to see is by checking the quality of the university or the company size nearby your property.
- If there is a private school and big company nearby your properties, it will increase the value price of the whole property nearby it. Potential tenants will have more capability to pay rent.
- Otherwise, if your property near a public school, factory, or start up company, chance are you’ll need to charge lower for rent fee and the property value growth won’t be as much as the first option.
3. Property Tax that Must Be Paid
The thing to know is that property taxes differ from one region to another.
Therefore, it is important to know the amount of tax to be paid. If the rental income can overweight than the amount of tax, it would be great!
However, don’t worry too much about high taxes. If the area is strategic and has a lot of potential tenants, there is no harm in buying property there. In addition, one must check for first time homebuyer credit while filing your taxes
4. Crime Rate
No one is willing to live in a location that is very prone to criminal activity. Your property will not be interesting to the potential tenants if it is located in a hazard-prone area.
The best way to measure crime rates in the area is to look at statistical data that you can find online. Know exactly the rate and frequency of vandalism, crime, pick pocket, robbery, and so on.
5. Properties Facilities
People who live in an area not only need a place to live, but also need a variety of entertainment and other facilities.
Apartment or condo would be a better options for renting out as compare to housing area. This is because they have bunch of facilities that house’s landlord can’t provide. For instance, swimming pool and gym.
6. Future Development Plans
A property is considered valuable not only from the current situation, but also from the future development plans.
If the area will soon be built with development plans such as malls and schools, the area will potentially have a good growth.
However, future development can also potentially harm and affect the competitiveness of your property. For example, there are plans to eliminate green open space or the existence of new housing that has the potential to provide competition for your property.
7. Return on Investment
Rental income is the potential passive income that you will get when you have a property for rent.
Make sure you know well what the average rental costs are around the neighborhood. So, don’t set a rental price that is too high or too low.
If you want to set a rental price that is higher than the average rental fee, make sure you provide additional value to the tenants first. You can do it by making an outstanding design and re-furnish it.
8. Work With Property Management Company
Consider yourself to pay for property management company.
- Do you have time to answer call from your tenant for lets say a furnace that stopped working?
- Do you want to struggle finding new tenants and spend your time if they want to view your property?
- How about collecting those tenant who pay late?
If you’re willing to spend some money for the management company to settle all these issue, you can live peacefully!
Some of the property offer some property management options when you first time buying it. Compare the fees and the effort to decide!
9. Proforma Analysis
When choosing a rental property to buy, do a proforma analysis. Look at 2 or 3 similar properties in the same area and check how the rental charge and property value has changed in the past 10 years.
By doing this, you’ll have a picture how your property will grow in another 10 years. This will give you a better understanding on how much you can make and profit with that property.
10. Get a Landlord Insurance
Landlord insurance is a protection that covered property damage (natural disaster, fire, and damaged by irresponsible tenants), loss rental income, and liability protection.
This is optional, but it is great to have this insurance to have a secured feeling and anxiety.
11. Know The Best Timing to Buy
Economic recession can significantly makes the property price go down. Hence, the best timing to buy a property is during recession!
But if you’re taking loan, there also a risk that you end up can’t pay up the loan due to the economic recession it self. You need to know your own financial condition.
Measure all the current expense that you need to pay monthly and analyze if you’re actually able to settle an additional loan from your new property.
By paying attention on the tips above, it will help you give a picture of the best property for buying and renting out. Do not let the money you have accumulated over the years be wasted for a bad property.
Well, those are the important considerations and tips before buying in rental property. Do you have other criteria of buying a rental property? Let us know in the comment below!