A lot of smart investors diversify their real estate portfolio by purchasing residential and commercial rental properties. When you research property thoroughly and find good tenants, investing into real estate properties can be very rewarding.
However, real estate investment is a tough and competitive business, because you are not the only one who is investing into properties after all. If you are not careful, you can get stuck with a junk property that becomes difficult to rent out or sell to get your capital out.
This is why we highly recommend doing all the necessary research before you dive into the market so that you are on top of the real estate investment game.
Here are 5 important factors to consider before buying and renting out properties.
The property’s location will determine how much demand there is for rental properties in that area. Properties that are close to hospitals, universities or offices tend to attract more tenants. Ask around in shops and local realtors, visit the neighborhood, and do thorough research to establish if the property is located in an area where you will be able to rent it out easily.
Nobody likes to live in an area with high crime rates. Check with the local police station about crime in the neighborhood and whether there were major disturbances and/or events near the property you are scouting. People tend to remember major incidents involving violence even after years. High mugging, break ins, and theft is not something that attracts tenants.
These include county and property value taxes. If there is a homeowner’s association, consider the HOA fee as well. Properties that are in hazardous areas, like a flood zone, also require flood insurance. Consider these costs and make them part of your operating income calculations.
Many tenants prefer to rent properties that offer parking spaces and are within walking distance of shopping places. Local parks, fitness centers and proximity to schools are also a desirable factor. Take account nearby facilities to scout a good property.
Future development does not directly affect tenant interest and demand for your property; however, it is important for your long term real estate strategy. One of the goals of buying and renting a property is to take advantage of its price appreciation in 5 to 10 years.
The rent from the property will cover your mortgage payments and allow you to operate at breakeven. It is the price appreciation in the long term which will determine how much profit you make from the investment. Make sure the property is in an area that is undergoing development and the market is not stagnant.
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