Rental Property 101: 5 Basic Questions
Buying rental property is a great, long term, way to build wealth. It does take time, knowledge and, of course, a great agent that knows the area. Once you get started, you can really get rolling. There are 5 basic questions you’ll need to ask yourself before deciding on a rental property to purchase. Well, actually, there are way more than 5 but these will get you started on your path to rental income.
Location, location, location!
You should always check on the neighborhood. Amenities, reviews, turn over in the neighborhood and how many other rental properties there are in the area? All this information can be provided by a good real estate agent and all will have an impact on how “rentable” a property will be.
Is it in an area where you can easily get to shopping centers or schools? Who are you trying to attract? This will tell you what you want close by.
What are you willing to pay?
This is where you sit down with your experienced realtor and his/her experienced mortgage person and see what your options are. The property price is one thing, but you need to keep in mind that you are going to have a lot more expenses than that. What if something breaks down? You’ll have to fix it. Also, if you don’t obtain any tenants for a fixed time you’ll have to be paying for those months as well. All these expenses add up.
What is the condition of the property?
This actually plays into the 2nd point quite a bit, and it’s a pretty huge factor. You’ll more than likely have to do some sort of repairs or fix-ups before you can market the property, as well as ongoing costs that will occur. Again, use your real estate agent’s contacts. He/She should have a list of great painters and flooring people ready to go.
Age of property? 10 to 30 years old seems to be a “sweet spot”, in my experience, that should keep your costs down. Remember, there are also “home warranty” companies out there that sell annual warranty policies that cover all the big costs, usually with a co-pay. Check to see if they’re available where you’re looking to invest.
Realistically, how much money can I make? (Cash Flow)
The question that everybody wants answered… How much, after expenses, will I actually be making? Well to be honest, it differs from property to property and area to area. You need to do your homework on each rental property you are looking at. Check what the other properties in the area are going for. Is this more of a rental side of town? Is it close to a college or school of some kind? How much in total per month are my expenses and how much am I charging per month? These are all great questions for your Realtor and make sure you get the answers. Don’t assume they have checked for you.
Is it a good time to buy?
Read my blog post, Is it the 'right' time to buy a home?, for a bigger discussion on the subject. But, check the area you want to invest in. It will be different no matter where you live. A “good” home at a “good” price is always a “good” time to buy. Remember EVERY investment has risk. Minimize it by working with a knowledgeable real estate professional.
These should get you started and if you’re looking to invest in the Austin area, including Cedar Park, Leander, Round Rock and Pflugerville, call the Big Man!
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