Knowing what to look for when buying a rental property can save you time, money, and stress. This article outlines seven considerations you shouldn’t overlook.
Consideration 1: Location
When purchasing a rental property, location, location, location is the number one consideration.
Are there any shopping facilities or other facilities near the facility? What about public transport? What about local schools? Is the area safe? Is it family friendly?
Figure out which locations meet your requirements and only consider properties within those areas.
Consideration 2: Property condition
We assess the age and condition of your property and estimate ongoing maintenance needs and potential renovation costs.
To meet market expectations and increase rental appeal, you need to consider the cost of upgrades and repairs. If you need help, talk to your contractor or home inspector for professional guidance.
This careful evaluation helps you predict long-term profitability and stay competitive in the local rental market.
Consideration 3: Rent market price
Evaluate the earning potential of your property by researching the local rental market. From there, we compare these rates to similar properties in the area to come up with a competitive price.
Understanding market trends allows you to maximize income while ensuring rents align with tenant expectations. Regularly monitoring these rates allows you to adapt to market changes and maintain profitability over the long term.
Tip: This is where a rental property calculator comes in handy.
Consideration 4: Legal and Zoning Regulations
Don’t assume you know the laws and zoning regulations in the area where you’re buying. Instead, you need to do two things:
- Make sure your facility complies with local zoning laws.
- Understand landlord and tenant laws, including rent control measures.
Complying with all regulations is important to avoid legal issues and ensure the smooth operation of your rental property.
Consideration 5: Tenant Demand
If you don’t research tenant needs, you might think you’ve found the perfect rental property. However, additional research is always required to ensure that tenant demand is (and likely will be) there.
High-demand areas often have higher rents and shorter vacancy periods, contributing to more stable rental income. Conversely, areas with low demand are highly competitive and have high vacancy rates.
Consideration 6: Funding and Expenses
Consider your financing options and calculate your total expenses, including mortgage, taxes, insurance, and maintenance costs. Depending on where you are in the buying process, you may not know the exact number, but an accurate estimate is essential. Knowing these numbers will help you better choose a financial plan that aligns with your investment goals and cash flow requirements.
Regular financial reviews throughout the life of your property can help you effectively manage costs and maximize your return on investment. For example, you may be able to save on interest by refinancing your property. Or you could use your home equity loan to buy another property.
Consideration 7: Future value
One of the main benefits of investing in real estate is the potential for appreciation. Although this is not guaranteed, history shows that there is a good chance that the value of the property will increase over the years.
When purchasing, consider the potential for real estate appreciation based on past market performance. Do the following:
- Analyze market trends and future development plans in the area that have the potential to increase real estate value.
- Assess economic stability to determine regional growth prospects.
- Monitor housing market indicators such as supply and demand and foreclosure rates.
Your goal is to generate a positive return on investment (ROI) each month as a landlord while owning a property that appreciates in value. Then your investment will be well worth it.
final thoughts
These are the seven most important points when purchasing a rental property. Other details will emerge along the way, but focusing on these early will keep you on the right track.
Ready to take the next step? Read our 8-step guide before you start your search for the perfect property. Learn more about how to make informed and confident investments.
Are you ready to succeed in real estate investing? Create a free BiggerPockets account and learn about investment strategies. Ask questions and get answers from a community of over 2 million members. Connect with investor-friendly agents. etc.
Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
