When buying rental property for the first time, it’s important to carefully consider what you’re buying before signing the contract. You need to be sure that you’re buying a good investment and not wasting your money. Unless you’re specifically looking for properties in bad shape so you can fix them up, you want high standards to avoid major problems.
Rental properties can be challenging to maintain – even for people who have been investing for years. It’s a challenging, yet rewarding investment when done right. To get the best returns, keep the following signs in mind when looking at investment properties you plan to use as rentals.
It will help you make better decisions and you’ll have an easier time learning the ropes.
The right timing
precise formula for figuring out the perfect time to buy property, knowing the difference between a buyer’s market and a seller’s market will help you acquire a good property at a fair price.
In a buyer’s market, homes are generally priced lower and are abundantly available. In a seller’s market, demand is high and there are fewer homes available, which means prices are higher. Sometimes it makes sense to buy at lower prices, but when there’s a strong rental demand, paying more can work out well.
Another timing factor that changes the price of a property is interest rates. When interest rates are low, financing a home is more affordable. The job market is yet another factor to consider. When the job market is strong in a particular area, there is usually a higher demand for rentals, which makes buying rental property in that area more profitable. Thankfully, the job market is pretty strong in Austin and the surrounding areas.
You really need to make your own choice regarding the timing of your purchase, but knowing these details can help guide your decisions.
Major defects and overall property condition
Never buy a home without a professional inspection to uncover potential issues. Just by looking on the outside, you won’t be able to spot hidden or unknown damage and if you can’t prove the owner knew about the issue, you’ll be on the hook for repairs. Unless you’re specifically looking for a property to fix up and dump money into, you don’t want to end up with a money pit.
The most important things to look at are the most expensive to fix. These include the roof, plumbing, and electrical systems. It’s possible for professionals to miss some things, like a leak in the roof, so make sure you search all the ceilings for signs of water damage.
You really don’t want your first rental property to need major repairs and renovations, so aim to buy a property in good overall condition that won’t be so much work. If you decide to get into rehabbing later, that’s fine, but don’t jump into it as your first investment property.
How long has the property been on the market?
The longer a property sits on the market, the more likely there is something big deterring buyers. This could be anything from an unfortunate design flaw to obnoxious neighbors, or repairs that the new owner will need to make.
Don’t rule it out, but be cautious about buying a home that has been on the market for a long time, especially in a hot market.
Are property values increasing or decreasing in the area?
When you find a property in a neighborhood with falling property values, that is not a good sign. You can’t predict when or if property values will rise again, especially if the reason for the drop isn’t something you can control. You don’t want to buy a property that has a pre-existing disadvantage in turning a profit. There are plenty of properties that aren’t losing value, so make sure to do your research and avoid bad investments.
Can market rent cover your mortgage?
There are all kinds of reasons rental rates rise and fall, and you can’t control the whole market. However, at the bare minimum, you should be able to cover your mortgage and have a little left over by charging market rent.
If you’re looking at a specific property where your mortgage is going to be higher than your rent, and you have other options, skip that property. If you don’t have other choices and your high mortgage is a result of your personal credit situation, it might be worth buying regardless. If you want to get into real estate investing and renting out your properties, you have to start somewhere and you can build better credit along the way that will eventually allow you to refinance for a better rate.
Is there a high tenant demand?
As a rental property owner, you’ll want to reduce vacancies as much as possible. You will be losing money every day your unit is vacant. One way to do this is by purchasing property in an area where tenant demand is high. Often, this also happens to be in an area with big growth and plenty of job opportunities.
If you can help it, avoid buying property in an area with less tenant demand because you’ll struggle to keep it rented. Even if you must wait and keep looking for another property, it’s worth the extra time. Real estate investing is a long-term strategy, so make sure you make your plays accordingly.
Green Residential can help you generate cash flow
If you’re a first-time investor and landlord, it’s not easy doing everything on your own. We can help. As the premiere Austin property management company, we are an investor’s first choice when they need professional property management services.
When you work with us, we’ll help you acquire and retain great tenants, collect rent, perform maintenance and repairs, inspections, and even file evictions on your behalf if needed. We’ll take care of all the difficult tasks so you don’t have to lift a finger. If you’re ready to make your property more profitable and easier to manage, contact us today for more information.