Buying your first rental property is a huge step forward in your real estate investment career. To ensure you’re choosing the right property for your portfolio, consider these tips:
Do: Check The Neighborhood
Once you’ve decided to purchase a rental property, you should pay close attention to the quality of the community you’d like to invest in. Visit potential neighbors, talk to business owners and become an expert on the area. Understand the long-term consequences of choosing a specific neighborhood before you’ve actually chosen it.
For example, is gentrification an issue? Have you noticed a distinct need for affordable housing? Does the neighborhood in question provide access to public transportation, stores and entertainment? Choosing a growing and expanding neighborhood will guarantee a solid basis for your investment.
Don’t: Forget To Think Long-Term
Remember, when you purchase a rental property, you aren’t making a short-term investment. You are accepting decades of commitment, complete with detailed maintenance, upgrades and continued investment in tenant satisfaction and marketing.
To make a smart and sound investment, create a document that outlines your long-term plan. How will you market your property over the next 10 years? What quantitative, measurable goals do you have? How do you plan to meet these goals?
Having a plan of attack and a clear definition of success will help you as you continue to invest in rental property for years to come.
Do: Think Carefully About Taxes
If you want your property to be profitable, conduct a fair amount of research on tax regulations before making a purchase. Most states and cities have separate tax regulations. Your required tax burden could be higher or lower than average, depending on location, value and a number of other factors.
Look carefully at the neighborhood in which you’d like to invest, and don’t underestimate the toll that serious regulations can take on your potential return.
Don’t: Forget Legal Restrictions
There are usually legal restrictions involved when purchasing rental property. The exact restrictions, however, depend on the property you’ve chosen. For example, if you invest in condos, you’ll probably need to join the Home Owners Association (HOA).
In order to meet HOA requirements, you’ll need to pay an annual fee and abide by all posted rules and restrictions.
Do: Choose Property Near A Reputable School District
There are many reasons to choose real estate near a reputable primary or secondary school. Not only will your property appeal to families, but your potential tenants may be willing to pay more for accessibility.
For example, if your property is located less than one mile from a high school with positive reviews, you’ll hear from tenants interested in allowing their children to walk to school. You aren’t required to pay extra for this perk, but you’ll reap the rewards.
Don’t: Underestimate Time
Your investment may take months, years or even decades to pay off. There’s absolutely no reason to get discouraged if you haven’t been able to turn a profit after 12 weeks. Instead, give yourself a reasonable amount of time to make necessary updates to your property and improve your profit margin.
Do: Make Sure Neighborhood Crime Rates Are Low
There are few things more important than making sure your property is located in a neighborhood with low crime rates. This can make or break the value of your investment. After all, it should go without saying that most people aren’t interested in living somewhere downtrodden with crime and violence.
Your property should be located somewhere safe and comfortable for all tenants. Of course, no neighborhood is perfect. You may need to weigh your options, based on the level of control you have over safety on your property.
For example, while you can add security measures to combat high theft rates, areas with high violent crime rates should be avoided at all costs.
Don’t: Lose Sight Of Small And Important Details
Every property investment involves details both large and small. No matter the size, keep all information in a safe place where you can reference everything of minor and major importance. Otherwise, seemingly insignificant details that carry serious importance can be missed.
Do: Check Employment Rates In The Area
You might wonder why the employment rate in a particular neighborhood is important for real estate investors to understand. The answer, however, is fairly obvious. If your tenants can’t find reliable work, they can’t pay rent!
Your location should come with incredible employment opportunities – and those opportunities should be growing in size, salary and scope. If not, it might be time to turn to other neighborhoods for your first property investment. In many ways, a lack of job growth is just as bad (or worse) than a high unemployment rate.
Don’t: Flip A Property If You Aren’t Capable Of Doing The Work Yourself
Perhaps the most common mistake made by new property investors is choosing a property that requires a serious amount of work when you are incapable of completing the work without third-party assistance.
If you don’t know how to flip a rental property, don’t invest in a property that needs flipping.
Otherwise, you’re setting yourself up for disappointment, frustration and failure. Even the most straightforward renovations can turn into a money pit under inexperienced management.
Do: Choose A Property With Less Landlord Insurance Risks
Landlord insurance is more expensive than homeowner insurance by some 15 percent to 20 percent. For this reason, it’s important to consider the cost of insurance when choosing a rental property, as high rates can pose a serious problem when it comes to making a profitable investment.
Choose a low-risk neighborhood by conducting a fair amount of research before making a purchase. Obtain a quote from several companies and ask how the final number was obtained. Then, if the quote is too high, decrease the rate by choosing a property with safer qualities.
Contact An Expert To Learn More
Interested in learning more about rental investments? We can help at LCI Realty. Our experienced property management team is prepared to walk you through the steps toward a positive, smart investment. Call (480)-788-7359 to learn more!
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