An owner is only as successful as his property allows him to be. If he doesn’t have a good rental property or overpaid for his property, he will have a hard time finding success as a landlord. Choosing a rental property is the most important decision he will make, so he must be absolutely sure that he has done the research to help him make the right decision.
When selecting a rental property, there are a few questions to consider.
• Can I pay the down payment? Many lenders view rental property as higher risk and often require a larger down payment on the loan as a result. Sometimes they may ask you to pay up to 40% of the property. Talk to your lender to determine how much you’ll need to put down, and if you can’t realistically afford it, you’ll need to consider another property to invest in.
• Will the market rental value cover the mortgage? This comes down to simple math and Homeownership 101. Your rental rate should cover the mortgage. If you pay more each month than you take in, you won’t make a profit as a landlord (unless you also live in the property). If the rental rate you need to cover the mortgage is not in line with market value, you should not make the investment.
• Is the structure suitable for rent? There are certain codes that structures must meet before they can be legally rented. Familiarize yourself with the rental laws in your area and have a professional inspect the building to make sure everything is up to code. If it’s not up to code, you need to consider the costs of improving the structure to bring it up to code. This is a very important step, so make sure you don’t skip it.
• Will repairs or upgrades be necessary? Don’t just look at the property’s price tag as-is. You should also consider any additional money you’ll need to invest in upgrades. This could be anything from something as small as changing the locks to something as big as dismantling the place and rebuilding the interior. You need to consider all the costs in order to determine if it really is a smart investment.
• Is the property located in a safe and secure area? Safety and security are always top concerns for tenants, especially if they have children. If the property itself doesn’t seem safe or is in a particularly unsafe area of town, you’ll probably have a hard time renting it out and seeing a return on your investment. Look up reviews online about neighborhood safety, check crime statistics, and take a walk around the area at night. Make sure there is enough lighting and change/add locks on doors and windows.
Always be thorough when making an investment in rental properties.