Entering into the property market for the first time can be a very daunting, and occasionally confusing, prospect. There are so many variables to consider that it can be difficult to know where to start.
Some who buy investment properties to rent out will sometimes put their trust in property management companies and just expect the money to roll in. But if you want to get an understanding of what to look for when you buy to rent, it’s wise to gain an understanding of the component parts that can make a property profitable.
Hopefully, you will have some idea of what area, state or county you would like to buy property in. You should take a look at some of the key features of the area when deciding how profitable the property may be. In their study, GoBankingRates found that the best areas to get a property in are the areas with the largest possible return of investment.
Areas of outstanding natural beauty, for instance, can fetch a great deal more than an inner city, given the right circumstances. But it’s also important to beware of the issues that a sea-view, for instance, may bring in times of bad weather, or the cost of maintenance if a property floods.
You might want to buy a villa in a part of the country that has excellent weather all year round, but you should also consider the effect this weather can have on water supply and sanitation.
It can mean a more profitable venture if your chosen location is within range of good transport links, especially if the job prospects aren’t great.
A crucial consideration is how the local government conducts itself. If you find an investment property that is relatively inexpensive and you plan to rent to young professionals, you should be forewarned on the property tax, as that may well eat into your profits.
“Local governance will also sometimes dictate the market value. Future development of the area may certainly allow a certain amount of growth in your property in the long term, but disruptive works can cause average rent prices to fluctuate in the short term, something to be aware of you plan on moving up the property ladder,” explains Karen W. Connery, a legal writer at BoomEssays and Essayroo.
It’s a good idea to think like a prospective renter when looking at your property, and the first thing that a prospective renter will look at is the local market. Some local governments will legislate the property market in order to ensure fair prices. So getting a good idea of the local average rent in combination with the local taxes is advisable.
An important aspect that you may need to do some extensive research on is the community within which the investment property sits in. ‘Community’ is a very broad umbrella, but ultimately means the life and soul of an area.
This is where you’ll need to get out and about, and perhaps spend a bit of time in a given area. It might be worth taking a notebook as you observe and weigh the pros and cons of what you see.
It’s a good idea to take note of amenities such as theaters and museums, cinemas and events venues or anything else that might provide entertainment to the local populace. Amenities such as these can be great hubs for understanding the cultural make-up of an area, so it’s a good idea to check them out for yourself.
Once you’ve taken into account these things, you might spend a bit of time having a chat with some of the neighbors. Talking to renters and homeowners will give you a clear and honest picture of the virtues and limitations of a neighborhood, giving you a chance to understand things for yourself rather than relying on property agents keen to make a sale.
“From local newspapers and listings on the web, you can get an idea of the crime statistics, as well as how well schools in the area are doing if you are looking to rent to families. If the area has a particularly thriving job market, this can lead to greater competition in those seeking to rent from you, driving your rental prices up,” says Bertha G. Carvalho, a writer at Paper Fellows and UKWritings.
The Property Itself
Of course, one of the biggest considerations is the investment property itself. Here is where it may be advisable to have an independent property surveyor, or if you’d rather, a trusted friend or colleague, take a look at the property and offer an unbiased opinion. Push the seller for as many details as possible, including the age of the property, it’s energy efficiency, any maintenance issues it has had in the past.
If a property isn’t rent-ready at purchase, you’ll need to make some calculations based on the cost and time it will take to renovate. This way you’ll have a firm grip on the finances you’ll need to make the property profitable.
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The Bottom Line
When buying a property to rent out, you need to look at all of the aspects of a neighborhood and the property. You need to be able to assess trends that will matter in the future and how that neighborhood will develop. Analyzing all of these aspects will help you determine whether your property is worth the time and money to invest in and adjust accordingly.
This article has been contributed by Chloe Bennet.