Because not all rental properties are created equal, there are a couple of keys to keep in mind during the hunt for a long-term rental investment. First: Be clear on what you are looking for in a rental property. Second: Be clear on what prospective tenants are looking for in a rental property.
Let’s get out our checklist.
1. IT’S ALL ABOUT LOCATION
We’ve all heard the famous real estate mantra: Location, location, location. It remains the most important aspect of a solid investment because an excellent location is the key to securing a good return on your investment. A better location demands a better rental rate and can minimize the financial loss of potential vacancy rates.
What does a good location look like?
Look for: Good schools, plentiful jobs, nearby public transportation, parks and recreational amenities including shopping and restaurants.
Don’t forget: The safety of the neighborhood is critical. Take the time to check out the neighborhood statistics for safety. Drive around and consider the surroundings. Do your homework!
2. CRUNCH THOSE NUMBERS
Lean into the numbers of the transaction and try to keep emotion out of the decision-making process.
A sound financial strategy is crucial before you buy. Remember that you’re covering operating costs and property taxes in the equation, in addition to the average vacancy rate. There will likely be improvements necessary for the property as well.
3. KEEP THE MAINTENANCE COSTS DOWN
High turnover rates (such as those found in student areas) can increase the necessity of maintenance on a property. Such properties may take additional time and effort to maintain to keep occupancy rates high.
If you prefer to not use a property management company, make sure your property is reasonably close to your home. Otherwise, the time, effort and money involved in caring for an inconveniently-located property can get old—fast.
4. IT’S ALL ABOUT APPRECIATION
Does the property need updates that can help with appreciation such a new coat of paint, new flooring or painted kitchen cabinets? Cosmetic updates may help with appreciation. Plus, those updates may increase rental prices. For example, will a new coat of paint command a higher rent? In general, cosmetic updates can increase the profitability of your rent—particularly if you put in a little sweat equity.
Property generally appreciates over time, but don’t forget to consider the appeal of the property’s location. Cul-de-sacs, well-regarded schools, public transit locations and proximity to shopping will help with the appreciation of a property.
5. THINK NORMAL AND PRACTICAL
Don’t underestimate the value of normal and practical in your investment-property search. Normal means a home in decent place in a desirable area.
Practical means a 3 bed/2 bath with a traditional floor plan. Impractical means that charming Victorian with dated wallpaper throughout.
And one more hint: Know your desired tenant and meet their needs. Looking for seniors? Look for a single-level property. Looking for up-and-comers? New flooring and modern lighting may appeal to this demographic.
BOTTOM LINE
Don’t make it complicated. Stay basic. Find long-term success.
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