1) Does it Cashflow
People often times miss this very important question. They try and measure the cashflow of the future value, or they say they don’t mind feeding it some money each month. To be direct, it 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. Cashflow is the most important thing when deciding on a rental property.
2) Property Taxes
Property Taxes are an expense that varies widely in an area. Once again this goes back to cashflow. If the property taxes are high, but it’s a good area and you can charge high rent then it may be worth it. You always have to look at your profit minus your expenses to really see the cashflow potential.
Consider the quality of the local schools around you. Good tenants with kids normally want them in a quality school district.
No one wants to live in an unsafe place. Sure, most areas look safe during the day, but make sure to take a drive around on a Friday night. See if you feel safe in that environment. Also, talk to the neighbors and ask them about criminal activity in the area.
5) Job Market
Locations with growing employment opportunities attract more tenants. To find out how a specific area rates for job availability, check with the U.S. Bureau of Labor Statistics (BLS). Too many times investors don’t take this into account. There is inexpensive real estate in some areas, that would cashflow if you had a tenant. The important word there is “if”. Jobs create tenants, so make sure there are jobs in that area and that the employment rate is growing and not declining.
Tour the neighborhood and check out 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.
7) Is It Somewhere People want to Live?
Investors get very wrapped up in price and often forget about the demand in the area. You will have high vacancy if it’s not a desirable area for tenants to live. A desirable area typically has a lot of the amenities above.
8) 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.
9) 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.
Investing in real estate is a great way to obtain financial freedom, that said you can’t just go into it blindly. You have to do it right. In my book, “The ABC’S of Buying Rental Property” I walk you through what you need to know, so you make the right investment choices and maximize your profits.