There are several things to consider when thinking about how to start investing in real estate, like where you are going to invest, what type of property you want to purchase and what are the tax implications of your investment.
Real estate is a tough business, and the field is peppered with land mines that can obliterate your returns. That is why it’s important to do detailed research before you dive in so you’re on top of all the pros and cons of real estate investing.
The neighborhood in which you buy will determine the types of tenants you attract and your vacancy rate. If you buy near a university, chances are that students will dominate your pool of potential tenants and you could struggle to fill vacancies every summer.
That being said, there are things you can do to put yourself on the right path and ensure your best chances for success. Listening to real estate professionals and other successful investors is a great place to start.
Be aware that some towns try to discourage rental conversions by imposing exorbitant permit fees and piling on red tape.
Property taxes likely will vary widely across your target area, and you want to be aware of how much you will be losing. A town in financial distress may hike taxes far beyond what a landlord can realistically charge in rent.
Consider the quality of the local schools if you are dealing with family-sized homes. Although you will be mostly concerned about monthly cash flow, the overall value of your rental property comes into play when you eventually sell it. If there are no good schools nearby, it can affect the value of your investment.
No one wants to live next door to a hot spot of criminal activity. The local police or public library should have accurate crime statistics for neighborhoods. Check the rates for vandalism, and for serious and petty crimes, and do not forget to note if criminal activity is on the rise or declining. You might also want to ask about the frequency of a police presence in your neighborhood.
Locations with growing employment opportunities attract more tenants. To find out how a specific area rates for job availability, check with the U.S. Bureau of Labor Statistics (BLS) or visit a local library. If you see an announcement about a major company moving to the area, you can be sure that workers in search of a place to live will flock there. This may cause housing prices to go up or down, depending on the type of business involved.
Tour the neighborhood and check out the parks, restaurants, gyms, movie theaters, public transportation links, and all the other perks that attract renters. City Hall may have promotional literature that can give you an idea of where the best blend of public amenities and private property can be found.
The municipal planning department will have information on developments or plans that have already been zoned into the area. If there is a lot of construction going on, it is probably a good growth area. Watch out for new developments that could hurt the price of surrounding properties. Additional new housing could also compete with your property.
Being well informed on the current trends, including any decreases or increases in the average rent, income, interest rates, and even unemployment/crime rates will allow you to recognize the current market status and plan for the future.
Number of Listings and Vacancies
If a neighborhood has an unusually high number of listings, it may signal a seasonal cycle or a neighborhood in decline—you need to find out which it is. In either case, high vacancy rates force landlords to lower rents to attract tenants. Low vacancy rates allow landlords to raise rents.
For most landlords, this means assuming that not all months in a year will produce an income.
For some that means 2% less in revenue, for others, it’s as high as a 10% loss in revenue. The key is to assess the property, the type of tenant and then to factor in how much revenue loss you should expect on an annual basis.
Rental income will be your bread-and-butter, so you need to know the area’s average rent. Make sure any property you consider can bear enough rent to cover your mortgage payment, taxes, and other expenses.
Budget for the unexpected
Insurance is another expense you will have to subtract from your returns, so you need to know just how much it is going to cost you. If an area is prone to earthquakes or flooding, insurance coverage costs can eat away at your rental income.
Be realistic in your expectations. As with any investment, rental property isn’t going to produce a large monthly paycheck right away and picking the wrong property could be a catastrophic mistake.
Services like Real Property Management Southern Ct are a great option for investors since they’re a team of experts who have already conducted the due diligence on your behalf. I find that by keeping things simple, less mistakes are made, and you become more profitable in the long run. There’s no point in reinventing the wheel when there is already a proven process available to you.”
For your first rental property, consider working with an experienced partner. Or, rent out your own home for a period to test your proclivity for being a landlord.
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