As investment properties go, there are many opportunities you can get into, but one of the best opportunities would be single-family rental homes. With record numbers of renters on the market, the demand for single-family rentals is very high. There are also additional benefits, including long-term residents and the ability to appreciate over time. There are, however, some challenging areas when you’re planning to own rental properties. The most challenging of all is probably finding a great bargain in an expanding market. But don’t jump into purchasing that rental property just yet even though you think the deal is really great for a property in Westbury. Before making that decision, it’s important to ask yourself six key questions.
1. Why is the home listed at the current price?
A good deal on an investment property often starts by finding properties listed below market value. However, just because a property is listed at a good price, it does not mean you’ve struck a great bargain. You need to know the reason behind the price. Check to make sure the property doesn’t have any hidden damages or needs major repairs. Unless you’ve planned to invest a large sum of money into fixing it up, you’ll want to avoid a property like this. Anything spent making the property habitable must be factored into your rental margin, so why the property is underpriced matters.
2. What is the state of the local real estate market?
No matter what area you plan to purchase a rental property, you have to be well versed with the neighborhood and local market first. Some of the things you need to know are: how many rentals are nearby, what is the rental rate average for properties like your prospective one, and what the trend is for those rates— whether the rates have gone up or down recently. Crime rates, nearby amenities, access to public transportation, the local job market, and more are also important aspects of a rental’s location. The best locations tend to have a moderate number of single-family rental homes that have relatively low market values but comparatively high rents.
3. What is your expected rate of return?
On top of assessing the location and price, you should also calculate a potential rental property’s rate of return before making an offer. The rate of return, or capitalization rate, may have variations depending on the area, but it commonly falls between 4% and 10%.
To compute for the capitalization rate for a potential investment property, calculate your net operating income (rent minus expenses) and divide it by the home’s sale price. See to it that you include the other expenses connected with the sale or with the ownership of the property. These expenses include property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the home is in an area prone to natural disasters.
The smart move would be to make sure total expenses are about 50% of the gross rents – this is known as the 50% rule. If the property you wanted to get doesn’t offer a good return, go for another deal. There are a lot of other properties out there.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, bargain properties can be difficult to find. This is where some creativity and vision can help. Others may have passed on some quality rental homes, but that deal could still be very good for real estate investors. To achieve that, all you have to do is add value to a property, and there are several ways to do that.
For instance, upgrading the interior with modern flooring or new appliances. Another example would be to add a second bathroom to a home that has only one. There are houses with dens, sunrooms, carports, or other areas. These areas can be converted to increase the property’s total square footage, and the work can be done fast and inexpensively. All this updating and renovating is actually adding value to a rental property. What this helps do is achieve that positive cash flow you need.
5. Does the property fit into my niche or area of expertise?
One beginner mistake that some new investors make is to purchase a property in Westbury without studying it closely. They may think they’ve found a bargain or perhaps they’re pressuring themselves with a certain deadline for their next purchase. But there could be some issues the bargain property you get is not part of your field of expertise or if you are compelled to ignore clear warning signs to make a purchase.
It’s a smart move to develop a deep understanding of one niche or segment of the market so that you could judge for yourself whether or not an investment deal is truly a great deal or if it’s just too good to be true. Likewise, patience is a must so you can wait for the right deal to come along. This is an important aspect of investing in rental properties.
Just because other investors seem to be buying now does not mean you have to. When you have a prospective property, makes sure it fits in your specialty and helps you reach your goals. Staying focused on this would help you stay away from committing any of the common investing mistakes.
6. Who will manage the property?
Successful rental property investment is also one that appreciates over time. However, to be sure that your property continues to grow in value, you should have your property managed by a professional who is both trustworthy and experienced. If you have the skills needed to manage the property yourself, the next thing to ask is if you are available to tackle any midnight emergencies or repairs that may arise.
If you prefer to have the management handled by someone else or if your rental property is located far from your home, then you’ll have to hire a property management company that will work toward your investment goals. Professional property management companies like Real Property Management have grown to become a reliable, nationwide resource for rental property owners like you.
Before you make the decision to buy a rental property in Westbury, you should be sure that you have the best and most recent information available. Real Property Management Landmark offers a free rental property assessment. This can help you make the best-informed decision. Make use of this great service by contacting us online or calling us today at 516-522-2859.
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