If you are thinking about investing in rental property, here are three things to consider. Sure there are hundreds if not thousands of details to be aware of, but from a high level perspective here are some that will help you evaluate your options. We’ve done some of the work for you with the three main categories of information that will help you evaluate a rental property.
The neighborhood where you purchase a rental property will have a significant impact on everything from your ability to find a renter, the amount you can charge and eventually the price you will be able to sell your investment down the road if you choose to do so. One of the first things to understand is your property being marketed to single individuals or families?
If your goal is to attract families, you will want to make sure you select a property that is in a good school district. Do your research on the elementary, middle and high schools in the district where the property sits. You will also want to investigate what private schools exist in the surrounding area. SchoolDigger.com is a great resource to learn more about the schools in the district where potential properties are located.
Finally, conveniences and community areas located near the property you are thinking about purchasing. Are there grocery stores, libraries, parks, etc? These are all amenities to your property and the availability of places to shop, eat, and play can improve the rental value of the property. You also want to look at the condition of the businesses in the area. Rundown or poorly kept businesses are a red flag. The same with looking at neighborhoods in the surrounding area. If your neighborhood is pristine, but is surrounded by run down neighborhoods, then this is a long-term red flag. Unless those surrounding neighborhoods are revitalized they will eventually reduce the value of the property.
Listings and Vacancies
Every other property that is on the market is in essence a competitor of yours. The abundance of or the lack of competition can tell you many things. If there are not many properties on the market it could mean that the area is a very desirable area. It could also mean that there simply are not enough rental properties in the area. You have to do your research to determine what this indicates.
If there are a lot of rental properties and a high number of vacancies, then you have to wonder if the area is a good one from a rental perspective. If you have looked at the neighborhood factors, you should have some idea if there is anything to cause some concern. Assume that a good property priced right will not be vacant.
You can also use your competition to evaluate the amount of rent that the local market will sustain. Running comps on similar properties will help determine what the market is for your potential property. You also want to know how long on average properties remain rented. In other words what is the vacancy rate in the area.
Remember a couple of points: higher vacancies equal lower rents; new construction, especially if condos, townhouses, or apartments, is added competition; and declining neighborhoods means that rent prices and future sales prices will be decreasing.
The final piece you want to know is what amount of rent can you get for your property. We discussed much of this under the Listings and Vacancies section. Just remember that hopes and wishes have no place in potential rent expectations from a rental property. The market will support a price that is based on market factors. You can possibly squeeze extra dollars from how you market the property, or by investing money to modernize the property relative to the competition. But the best way to ensure a profitable rent is to make a smart purchase decision.
Make sure to evaluate your investment options to determine if it fits your model, and then be prepared to walk away. There are always other homes and neighborhoods that might make more sense.
A bad decision on your purchase will carry through for as long as you own the property. Do your homework and make smart business decisions when investing in rental property.
GSR Property Managers assists property owners in maximizing revenue potential while minimizing the hassles managing their properties. We recognize that there are a lot of factors that go into making a property a successful investment and put our experience and knowledge to work for you. Call us at 404-254-4502 or complete our Fast Form to learn more about our services.