Highlights of a Profitable Rental Home | Pyramis Company

Highlights of a Profitable Rental Home

 

Considering buying your first rental home? This task may be overwhelming for the first-time investor. Owning property is a tough business and is showered with many obstacles that can annihilate your returns. I’ll highlight the top things you should consider when shopping for a rental home.

Jumping Into Your Search

Although you may want a real estate agent to help you complete the purchase of a rental property, you should engage the services of a real estate property manager that has some background and training in rental properties as well as property management. Engaging a real estate agent from a general real estate office, that being one that does a little bit of everything and more important, primarily involved in sales can bring unnecessary pressure to buy.

Your property search will be limited by whether you intend to actively manage the property or hire someone else to manage it such as the Pyramis Company in San Antonio, Texas. If you intend to actively manage, you should not get a property that’s too far away from where you live. If you are going to hire a property management company, your proximity to the property will be less of an issue.

Considerations you should keep in mind when searching for the right rental home.

  • Neighborhood: Location, location and location. The quality of the neighborhood in which you buy will affect the types of tenants and how often you face vacancies. For example, if you buy in a neighborhood near a military base, the chances are that your pool of potential tenants will be mainly made up of military personnel and that you will face vacancies on a fairly regular basis due to our service men and women receiving transfer orders.
  • Schools: When you have found a good home near a school, you will want to check the quality of the school as this can affect the value of your investment. If the school has a poor reputation, prices will reflect your property’s value.
  • Property Taxes: Property taxes vary from city to city and state to state, as an investor, you want to be aware of how much you will be paying in taxes. High property taxes may not always be a bad thing if the neighborhood is an excellent place for long-term tenants, but the two do not necessarily go hand in hand. The cities appraisal office will have all the tax information on file or you can easily get this information from your real estate agent.
  • Job Market: Locations with growing employment opportunities tend to attract more people – meaning more tenants. To find out how a particular area rates, again, a good real estate property manager can help in this area.
  • Conveniences: Check the potential neighborhood for schools, shopping, churches, parks, and public transportation. Cities, and sometimes even particular areas of a city, have loads of promotional literature that will give you an idea of where the best blend of public amenities and private property can be found.
  • Criminality: Go to the police department for accurate crime statistics for various neighborhoods, rather than asking the homeowner or real estate agent who is hoping to sell the house to you. Items to look for are vandalism rates, serious crimes and petty crimes.
  • Listings and Vacancies: If there is a high number of listings for one particular neighborhood, this can signal a neighborhood that is in decline. Vacancy rates will give you an idea of how successful you will be at finding a qualified tenant.
  • Rents: You need to know what the average rent in the area is which is another good reason to be working with a qualified property manager. If charging the average rent is not going to be enough to cover your PITI and other expenses, then keep looking. If you can afford the area now, but major improvements are needed, then what could be reasonable now may mean liquidation later.

Listen To What The Neighborhood Has To Say

Talk to the folks in the neighborhood. Renters will be far more honest about the negative aspects of the area because they have no investment in it. Try to visit the neighborhood at different times on different days of the week to see what is going on, could be an eye opener.

Single Family Homes

In general, the best investment property for beginners is a single-family home. Single-family homes tend to attract longer-term renters in the form of families. The reason families, or two adults in a relationship, are generally better tenants than one person is because they are more likely to be financially stable and pay the rent regularly. As a landlord, you want to find a property and a neighborhood that is going to attract that type of demographic.

When you have an area narrowed down, look for a property that has growth potential and a good estimated cash flow. As far as appreciation potential, look for a property that, with a few superficial changes, will attract tenants who are willing to pay higher rents.

As far as cash flow, you are going to have to make an informed decision based on your due diligence. Take the average rent for the neighborhood and subtract the PITI and an allowance for maintenance and repairs. Don’t underestimate the cost of maintenance and repairs or you will pay in the long run.

In A Nutshell

Every city has good neighborhoods and most neighborhoods have good properties, but it takes a lot of maneuvering and investigation to insure that this will be a good investment. When you do find your ultimate rental property, keep your expectations down to earth and make sure that your finances are in a strong enough that you can wait for the property to start producing cash flow. Real estate investing begins with creating the financial circumstances where you can buy a rental property.

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