Do your research thoroughly before you invest in real estate. These are the top things to remember when looking for income property.

Starting Your Search

Before you bring in a professional, start your property search. An agent should not pressure you to purchase before you find the right investment for you. Finding the right investment will require some research and shoe leather.

This research will allow you to narrow down the key attributes you are looking for in a property, such as its type, location, size, amenities, and other details. After you have done this, you might need a real estate agent to assist you in closing the deal.

It will impact your location options. This depends on whether you plan to manage the property yourself or hire someone to do it for you. You don't want to live too far from the property if you plan to actively manage it. On the other hand, it is unnecessary to be close to the property if you want a property management company to take care of it.

Check Out These Top Points

Let's take an in-depth look at what you need to consider when looking for the perfect rental property.

Neighborhood

Your vacancy rates and the tenants that you attract will depend on where you live. Many students live near universities, so you may struggle to fill vacant properties every summer. Some towns try to discourage rentals conversions by charging exorbitant permits fees and adding red tape.

Property taxes

Property taxes will likely vary across your target area. You want to know how much you will be losing. While high property taxes can be a good thing in a neighborhood with many long-term tenants, there are also unattractive areas that have higher taxes.

You can either talk to the homeowners or the assessment officer of the municipality for all tax information. Make sure you find out whether property taxes will rise in the near future. In financial trouble, towns may raise taxes to a higher level than what a landlord can charge for rent.

Schools

If you are dealing with a family-sized home, consider the quality of local schools. While you are most concerned with monthly cash flow, it is important to consider the total value of your rental home when you decide to sell it. It can impact the value of your investment if there aren't any good schools near you.

Crime

Nobody wants to live in a place where there is criminal activity. Local police and public libraries should have accurate statistics on crime in their local areas. You should check the crime statistics for your neighborhood, including vandalism and serious and petty offenses. Also, note whether criminal activity is increasing or decreasing. Finally, it might be worthwhile to inquire about the frequency of police presence in your area.

Job Market

More tenants are attracted to areas with increasing employment opportunities. Check with the U.S. to find out how your area ranks in terms of job availability. Bureau of Labor Statistics (BLS), or visit your local library. You can be certain that people will flock to areas where there is an announcement of a large company moving. Depending on what type of business is involved, this could cause housing prices to rise or fall. It is safe to assume that your renters will want the same company that you would like.

Amenities

Take a tour of the area and see the restaurants, parks, gyms, and movie theatres. Also, take a look at the public transportation links and other perks that will attract renters. City Hall might have literature that will give you an idea about the best mix of private and public property.

Future Development

Information about developments and plans that have been incorporated into the area will be available from the municipal planning department. There is likely lots of construction in the area. Be aware of new developments that may impact the value of nearby properties. Your property could be able to compete with additional housing.

Number of Listings and Vacancies

A neighborhood with a high number of listings may indicate a seasonal cycle or a neighborhood in decline. You need to determine which one it is. In both cases, high vacancy rates may force landlords to lower rents in order to attract tenants. Conversely, landlords can raise rents by having low vacancy rates.

Average Rents

Rent is your main source of income. It's important to find out the average rent in the area. You should ensure that any property you are considering can pay enough rent to cover your mortgage payment and taxes. It is important to research the area in order to see where it will be heading over the next five years. A property that is affordable today can mean bankruptcy later if you cannot afford it now, but the taxes are expected to rise.

Natural Disasters

You will need to deduct insurance from your income. It is an expense that you must cover. Insurance coverage can be a drain on rental income if an area is susceptible to flooding or earthquakes.

Obtaining Information

Although official sources are excellent, you will need to speak to neighbors to get the truth. Both renters and homeowners should be consulted. Because they don't have an investment in the neighborhood, renters will be more open about the negative aspects. To see your neighbors live, visit the area at different times and on different days.

How To Choose A Property

A single-family home or a condo is the best investment property. Condos require little maintenance as the condo association handles all exterior repairs. You can only worry about the interior. However, condos tend to have lower rents and are appreciated slower than single-family homes.

Long-term renters are more likely to be attracted to homes with a single-family. Because families or couples are financially stable and can pay rent regularly, they are often considered better tenants than individuals.

Once you've narrowed down your neighborhood, search for properties with appreciation potential or good projected cash flow. You should look at properties that you cannot afford, as well as those that are within your budget. Sometimes, real estate sells for less than its listing price.

Look for properties that are attractive to tenants who can afford higher rents and make minor changes. This will increase the property's appreciation potential. In addition, if you decide to sell the property after a few years, this will increase the value.

To ensure a profitable venture, it is important to purchase a property at a reasonable price. Therefore, it is recommended that you do not pay more than 12 times the expected annual rent for rental property.

How To Determine The Rent

How is the rent potential calculated? It is necessary to make an educated guess. Don't be too optimistic. Renting too high and leaving empty units for months can quickly reduce the overall profit. You can start by looking at the average rent in the area and then work your way up. Next, you should consider whether your property is worth more or less.

Calculate the actual cost of the property to determine if the rent amount is feasible for you as an investor. Then, add your monthly mortgage payment, property taxes, and insurance costs to get a total of 12 months. Also, consider a generous maintenance and repair allowance.

Do not underestimate the cost of maintaining the property. The property's age and the amount of upkeep you intend to do will affect these costs. An older building will likely require less maintenance than one that is newer. A retirement community apartment would likely not suffer the same damage as off-campus college housing.

Not only does it save money, but you are also able to be available 24 hours a day for emergency repairs. You can also hire a property manager to handle everything, from collecting rent each month to fixing broken toilets. This service will cost around 10% of your gross rental income.

If you are satisfied with the results, or if there is still some money, your agent can submit an offer.

Making the Purchase

For investment properties, banks have stricter lending requirements than for primary residences. This is because they believe that people are more likely to risk their homes if times are tough than they would be for business property. You should expect to pay between 20% and 30% for a downpayment plus closing costs. Before signing, have the property thoroughly inspected and reviewed by a professional.

Make sure you have enough insurance. Renter's insurance covers the tenant's possessions, but the building is the landlord's responsibility, and insurance may be more costly than for an owner-occupied house. Tax-deductible items include mortgage interest, insurance, and depreciation.

The Summary

Each state has great cities and great neighborhoods, and every neighborhood is full of good properties. To find the perfect combination of these three things takes time and effort. You need to be realistic about your expectations when you find the perfect rental property. Also, make sure you have enough money in order to wait for the property's cash flow to begin.