While investing in real estate is a great way to increase your income, the practice is rife with pitfalls that can decrease your profits dramatically if you aren’t careful. Buying an income property can be a challenge for the first time investor, especially if you haven’t done your homework. The six features below are things you should think about and look for in a rental property to ensure it’s a profitable one for you.
1. Location
The location of the property you want to buy is of the utmost importance. This feature determines what type of tenants the property attracts and how long they stay. For instance, a rental property located close to a college will most likely attract college students who only need temporary housing during the school year. You may find yourself searching for new tenants every summer when the students return home at the end of the school year.
2. Property Taxes
Every property owner pays property taxes, but they vary from location to location. It’s important to check with the area assessment office for the tax history on a property you are considering. Keep in mind that high property taxes aren’t always a bad thing. If a neighborhood is really nice and tenants tend to stay there long-term, you can afford to pay higher property taxes.
3. Rent
The rent you collect on your investment property is the whole reason for owning the property in the first place. You have to research the area to find out what the average rent is and then determine if charging the average rent will cover your mortgage, taxes and other expenses. If it doesn’t, you have to find something else. Furthermore, research further to find out where the neighborhood is heading in the near future. Check for upgrades and additions that might raise property taxes. What you can afford now may not be affordable five years from now.
4. Schools
Tenants with children or those who plan to have children want to live in neighborhoods with good schools. If the school associated with your rental property has a poor reputation, it could affect the overall rental rate of your property. While your monthly cash flow may not reflect the school’s poor rating, selling your property in the future may be more challenging because of it.
5. Crime Rates
No one wants to live in a crime-ridden neighborhood. High crime rates drive down rental rates, so check with the local library or visit the police station to find out about criminal activity in the area you’re looking to buy. Avoid asking the person selling the property about crime in the area as he’s hoping to sell and may not give a completely honest answer. Look specifically at vandalism rates, petty crimes, serious crimes, and whether there has been a recent decline or increase in criminal activity in the area.
6. Local Amenities
The more a neighborhood has to offer, the more tenants it attracts. Look at current amenities such as parks, malls, movie theaters, public transportation and other conveniences, as well as ones planned for future projects.
If you have made the decision to invest in real estate, you owe it to yourself and your future earnings to do a bit of homework before jumping into anything. Buying rental property can be risky, but knowing what you’re getting into before getting into it helps you determine a honey-of-a-deal from a bankruptcy-waiting-to-happen. Keep the above six features a profitable rental property should have in mind as you search for your next real estate investment opportunity.
