Playing the Investment Property Game
A good idea takes hard work to make real. It’s no different when it comes to residential investment property. From your first itch to get into the investment property game to the day you sign your first tenant, you have to undertake a slew of tasks, some quite difficult.
Let your independent mortgage partner help you navigate the many financial and security issues involved. This way, you can concentrate on one of the biggest challenges ahead — finding the right investment property in the right location at the best price with the best chance of success.
Location, Location, Location
This old joke has become a cliché, but it’s still true. At the same time, what it really entails can often elude buyers. To help you in your search, you need to focus on the top 10 things you need to find in a residential investment property. Consider these 10 tips as you navigate your options:
- Check out the neighbors. The kind of neighborhood surrounding your residential investment property directly impacts:
- The kinds of tenants you attract
- How much you can charge for rent
- How safe your property and tenants can expect to be
- What kind of return you’ll get on the property value should you decide to sell
For example, if you buy a house or duplex near a college, you’re likely to draw transient students and faculty. Purchase a house in an upscale, non-commercial neighborhood, on the other hand, and you may be able to count on more stable renters, especially if they have children to enroll in schools.
- Go to school. If your target renters are stable families, then nearby schools take on primary importance. You need to vet the local school system, as it will play a huge role in your sales pitch to potential tenants.
- Pay your taxes. Property taxes vary widely from one municipality to another, so look for favorable tax rates as you begin ticking important features off your list of must-haves for your investment property. High property taxes may mean that you can attract a higher income, but taxes also cut into your profit. Check with local tax record offices and talk to people in the neighborhoods of your investment property.
- Keep an eye on the future. While you’re at municipal offices, check the planning department for any zoning changes recently passed. Look for proposals on the agenda. Ask about upcoming development near your investment property. An office complex or shopping mall behind your property could be a boon to your occupancy, while a large condo or apartment complex could exponentially increase unwanted competition.
- Watch out for bad guys. Crime can really bring down the value of your investment property while keeping out stable tenants. Check with local law enforcement agencies, as well as municipal crime statistics, to see how the neighborhood fares. Don’t expect sellers to tell you about criminal activity in the area. Instead, rely on public records or the police for signs of recent upticks in crime.
- Consider area vacancies. A significant number of vacancies in the neighborhood point to signs that it may not be the best place to buy investment property. Something may be going on that’s not readily apparent. Make sure you identify the reason before buying. Also, the lower the vacancy rates, the higher the rent you typically can charge.
- What’s the going price? While you’re investigating other rentals in the area, find out the average rents for similar properties. Just as homebuyers look for comparable properties — which are part of your purchasing process, too — you need a clear indication of comparable rents in the area. You need to know that the rent you can charge will cover your costs and leave you with some profit.
- Look for fun and amenities. Neighborhood pools, greenways, bike routes, nearby shopping and restaurants all are amenities that renters look for when considering where to live. The local Chamber of Commerce or tourist bureau can help you identify fun activities near your investment property. Having your finger on the pulse of the commercial and natural amenities in the area will help you develop a business plan to keep your units full.
- Where do people work? Find the employment opportunities nearby. Check out the latest statistics on unemployment in the area, as well the major local employers. A big corporate environment may be ideal for renting to families, while an area with very low unemployment may attract a high volume of newcomers who likely rent before putting down roots.
- Weather, anyone? A flood plain obviously isn’t an ideal choice for an older single-story investment property. At the same time, an area that’s prone to flooding may be highly desirable for renters that your high-rise investment property ideally accommodates. Know what to expect going in.
While you talk to your insurance agent about the kind of weather-related insurance you’ll need, consider the extra insurance costs you may have to cover. In addition to floods, you’ve got to consider earthquakes in California and mudslides in the mountains of Western North Carolina. Every expense you incur with your investment property eats away at your profits.
For more tips on buying an investment property, contact Prime Mortgage Lending.