Three Questions To Ask Before You Buy Your First Rental Property
Having your own real estate investment in the Atlanta area could be one of the best things you could ever do. If you operate a rental property properly, you can enjoy profits for many years to come. So, we thought about what can we tell a newbie about buying their first property and there was going to be so much, so I decided to start with three questions to ask before you buy your first rental property.
Of course, our suggestion is to start with areas with which you are very familiar. But even before I even start out asking questions, there are things that I ask myself.
- Am I financing or paying cash?
- If I am financing, how much money to I have for a down-payment and repairs?
- How long do I want to have this property? 3 years, 5 years, 10? Or will this be a flip?
- What is my goal? Long term appreciation and rental income or a quick turn around?
Depending on how you answer the questions above, it will dictate which property will be right for you. Then, can you ask the questions below. If you decide that a long term renal is right for you, then my first question is How Long Has This Property Has Been On The Market?
How Long Has This Property Been On The Market and What's the Price History?
Why do I want to know how long a property been on the market? Well, if it just got listed, then the owners (be it a bank or an individual) is much less likely to negotiate. If the property has been sitting on the market for a while, then there are two options. It's either severely overpriced or there is something wrong. I'll address the "something wrong" issue below, but first lets look at the price history of the potential investment.
You must look into the history of the price of whatever home you want to invest in. A good real estate agent can provide you with current valuations, as well as factors that may have influenced pricing over several years. It is important to know not only whether a property is increasing or decreasing in value, but also why the value has changed. These changes can often reveal opportunities in how you manage the property.
What Is The Area Like? Be Fully Aware of the Features and Benefits of your Investment Property
You should take a careful look at the many features that come with any rental property you seek to acquire. Be sure that you consider the following issues about your new investment property:
- What is the neighborhood like? Is it a family friendly environment? Is there any crime? (Trulia.com actually gives great information about crime areas).
- Is the home near any popular attractions or points of interest that might make the local area more appealing? Good school system? Bad school system? How do school systems rate?
- Are there recreational attributes to the property that can be utilized by tenants? Is it in a subdivision where there is a pool? Tennis courts, other amenities? Playgrounds? A lot of the answer to these questions will dictate who your tenants will be.
- Is there an HOA? How much is it on a yearly basis? If there is an HOA, does it have any limitations on renting?
Answers to these questions will be in direct correlation with the amount of rent you'll be able to charge, your ROI and what type of tenant will you be able to attract to your rental property.
What Is The Condition Of The Property?
Often, investment properties become available that have been subject to a certain amount of neglect wither through a foreclosure process, short sale or even by elder owners. Earlier I mentioned that there might be something wrong with a property if it's been on the market for a long time. If it wasn't the price factor, then it has something to do with the condition of the property. It is important to be fully aware of issues that may require additional costs, and most importantly, be financially prepared for extra costs and unpleasant surprises. So when it comes time to analyze the condition of the property,
- Is the electrical system in need of repair or improvements? Do all mechanicals meet your local code requirements? Does wiring meet the code requirements? Is the main panel up to code?
- Is the foundation sound? Many foundation repairs can be quite costly to address.
- The condition of siding, particularly painted siding, can be an ongoing and costly issue for an investment property.
- How old is the HVAC system? Has it been maintained regularly? Is it working properly? Is the HVAC unit sufficient for the space?
- How old is the roof? Is there any damage? Does it need minor repair or does it need a new roof?
- How old is the water heater? Are there any active leaks in the house? Does it smell moldy? Can you see mold?
- Are the floors sound? I only mention the floors because a while back we purchased a property and the floors caved in. It presented an unexpected expense that continued to increase our renovation costs. Luckily, we were financially prepared for any surprises.
Always utilize a professional property inspection service prior to purchasing a property, and, make sure you are financially prepared. If you are considering a property that is in need of some repair, consider also how your investment in those repairs might net a return for you. While some renovations offer a positive ROI, others may not.
Buying the right property and managing it successfully can be a challenge. ALH|Podland Rental Homes Property Management can help through the process of managing your rental properties to ensure that your tenants are satisfied and that your buildings are maintained with profitability in mind. These important details should not be ignored and a professional property management firm should be a part of your investment property business plan.