You’re interested in starting to invest in rental property, be sure to consider these five factors.
- Do you Want To Self-Manage Or Hire A Professional Company
If you are considering taking on the management be sure to speak with several investors that have already made this choice, managing a property can be a lot of tedious work and very time consuming. Also, many times a professional management company will actually save you money, budgeting for large expenses, having preferred pricing with vendors, or by just being aware of local legislature and how to navigate it efficiently.
- Property Taxes
Always consider property taxes when buying an investment property. High taxes will eat into your profits, while low taxes will allow you to keep a larger amount of your rental income each month.
Some locations charge investors at a higher rate than owner-occupants, so it’s worth calling your local tax assessor to determine whether this is the case. Also, consider talking to a tax appeal specialist in the area, and see if they think they could get the taxes lowered, a good tax appeal specialist will work for you on a contingency basis, so you have nothing to lose.
- Condition of The Property
After receiving a thorough inspection by a qualified professional, ask yourself how many of the repairs you can do on your own, and how many would require outside contractors. Get estimates for any major jobs that you would have to pay someone else to do.
You’ll want to make sure that you fix all serious issues before anyone takes occupancy so figure how long the repairs should take. If the property needs to be vacated for months while renovations take place, it may not be worth it without a major concession or price reduction. Also, don’t forget to address minor issues before they become major ones, we’ve all heard the saying, an ounce of prevention is worth a pound of cure
The location of your investment property is key, if you are doing multifamily with large units it’s always good to be near schools (check school district ranking), parks and mass transit. If your units are smaller (studios and/or one bedrooms)you may focus on jobs or universities in the area.
- Insurance Costs
Just like property taxes, insurance costs can eat into your profits, so be sure to do your due diligence.
The first step is to find out if there have been any major claims on the property within the last 3-5 years. If so, you may already have to pay a premium, if not, then you will need to decide what kind of coverage you need for the investment property. You may want to pay a smaller premium each month but be faced with a higher deductible when you make a claim.
Also, you need to know whether the exact area you’re interested in has higher insurance premiums due to its vulnerability to floods, tornadoes, hurricanes, earthquakes or other natural disasters as that may require extra insurance, especially if you are getting a loan on the property, or any type of agency financing.