The 9 Most Important Things to Consider When Buying a Rental Property
So you have your eyes on a property, but you’re still deciding whether or not it’s right for you. While we can’t always predict the future, one of the things I like about real estate investing is that we can eliminate a lot of guesswork by getting clear on some key issues at the outset. Here are nine things to consider when looking at a rental property.
- Does it Cashflow?
Determining if the property will cashflow is the most important test of whether it’s worth buying. Sometimes investors will base the cashflow on the property’s future value, or they say they don’t mind feeding it some money each month. Honestly, a rental property is only a good investment if it cashflows based on the rents and expenses of today, not the future rents you think you will get five years from now. Being able to reap cashflow right away is key.
- Property Taxes
This is a key part of determining cashflow, and yet a lot of investors forget to factor it in to their numbers, or they underestimate them. Property Taxes can vary significantly even within the same state, so it’s important to get hard numbers on what the property taxes would amount to. Even if the property taxes are high, it may be worth it if you’re buying in a good area where you can charge high rent. You always have to look at your profit minus your expenses to really see the cashflow potential.
Buying in a strong school district will help drive interest in your property. Millions of families rent, and for many of them, school districts are the most important consideration.
A lot of areas look safe during the day, but that can be deceptive. If you’re not familiar with the neighborhood where you’re buying, do your research. There are numerous websites and apps where you can research crime statistics for a given neighborhood.
- Job Market
Jobs create tenants, so make sure there are jobs in that area and that the employment rate is growing, not declining. If there’s a major employer nearby, that increases the likelihood that you’ll have continuous occupancies in your property. To find out how a specific area rates for job availability, check with the U.S. Bureau of Labor Statistics.
Tour the neighborhood with a special eye on the parks, restaurants, gyms, movie theaters, public transportation links, and all the other perks that attract renters. The more amenities an area has the easier it will be to rent.
- Is It Somewhere People want to Live?
Investors can get very wrapped up in price, sometimes at the expense of overlooking a major problem with demand in the area. Even when there are enticing amenities and the price point is attractive, that won’t help if there’s some major reason that people don’t want to live there. Is it routinely noisy? Are you immediately next to a freeway or an airport? Are there going to be unwelcome odors wafting in from the nearby dump? Again, get to know your neighborhood to learn if there’s something about the location that will repel prospective renters.
- Average Rents
Rental income will be your bread-and-butter, so you need to know the area’s average rent and what the comps to your property are charging for rent. Zillow is a good place to start to find this out.
- Natural Disasters
This was a big lesson I had to learn, but you don’t want to invest where there are high rates of natural disasters. Hurricanes are an especially expensive disaster and take it from me, a hurricane will eventually hit your property if you’re in a hurricane area. Also make sure that your property isn’t in a flood zone.
With the amount of work and money involved in real estate investing, you don’t want to choose your properties hastily. Investing in real estate is a great way to obtain financial freedom; you just have to do it right. In my book, “The ABC’S of Buying Rental Property,” I walk you through everything that you need to know, so you make the right choices to maximize your profits.