Get the most out of your rental property investment by being selective in your house hunting. Despite being one of the most stable forms of investments, real estate comes with its own set of risks. Most property owners need a loan from a bank or private lender to purchase a house, and spending that capital on a rental that struggles to make enough income can make you default on your repayments. As a result, it’s essential for every soon-to-be landlord or investor looking to expand their portfolio to know the tell-tale signs of a rental property pitfall. So stick around till the end, we’re laying out the top 4 red flags to look for when assessing a rental property investment:
4 Red Flags to Look for When Assessing a Rental Property Investment
Location
Pay attention to a property’s neighborhood during an assessment of the property to avoid getting stuck with a low-income investment. Investors cannot understate the importance of a property’s location in influencing your rental success. After all, would you rather live in a house 10 minutes away from your job, kids’ school, and great restaurants, or an apartment in a high crime rate neighborhood that is 25 minutes away from the only bus stop? Even if the rental in the latter location is cheaper and requires less capital, it could be a waste in the long run, because what you save on your down payment would most likely pale in comparison to lost profit from vacancies.
Occupancy Rates
Ask about local vacancy rates to ensure you don’t have trouble attracting tenants. Safe neighborhood? Check. Proximity to amenities? Check. Ease access to transportation? Check. Three months of vacancy? Also, check. Despite having the perfect location on paper, some properties still experience frequent vacancies which could signal an underlying problem with the rental’s condition, previous management, or supply outstripping demand. So if you’re in a hurry to take it off the market before understanding the factors that affect the property’s occupancy rate, you could find it difficult to find and retain tenants down the line.
Physical Condition of the Property
Prioritize the home inspection process when buying a new property. Finding a house that needs a fresh coat of paint or some new cabinets doesn’t have to be a big deal. On the contrary, Bay Property Management Group Richmond advises investors to be prepared for other expenses after buying the property because minor repairs are the norm. When cosmetic changes start to evolve into major structural issues like a roof replacement or house rewiring, these extensive and unexpected repairs could eat into your profits.
Rental Income
Weigh your potential rental income against the cost of running the rental to be on the safe side. It’s not enough to find a property in good condition in the right neighborhood with a reasonable occupancy rate. If the rent required to cover expenses like mortgages, taxes, and utilities is unrealistic compared to market standards, the rental business will most likely fail. However, investors can avoid mistakes by spotting these red flags early. So you have to ensure your potential buy can generate enough income to sustain its upkeep and earn you profit.
Importance of Knowing Current Rental Market Trends
1. Set Competitive Rental Rates
Keep rentals occupied by setting competitive rental rates that keep your vacancies low. If you decide to charge tenants rent based solely on what you feel is a fair price, you run the risk of alienating your target audience or undercharging them and losing valuable cash.
2. Predict Tenant Demand
Maximize your rental profits by anticipating tenant demand and adjusting your rental strategy accordingly. For example, fall has one of the highest moving rates because of college students finding new accommodation, and families preferring to move at the start of a new school year. So since the market is likely to experience higher demand, you could increase your rental rates to earn some more money.
3. Identify Potential Investment Opportunities
Track current market trends to identify potential areas of growth. Yes, real estate is great at hedging inflation. However, some properties jump leaps and bounds above the national inflation rates because of rapid development in their areas. In other words, savvy landlords who can identify these areas can buy in quickly and experience a rapid boost in their portfolio.
Conclusion
Invest in rental properties that guarantee stress-free ownership and maintenance. The last thing any landlord wants is to spend their time, effort and money putting out fires when you should be earning steady rental income. And one of the best ways to avoid that hassle is by being particular about your location. In the long run, a property’s location can contribute to the other red flags we highlighted in this article. After all, if you buy a house in a place with a high crime rate or that’s far away from basic amenities, you’ll inevitably struggle to fill your vacancies and earn sufficient rental income.
That’s why it’s crucial to understand current market trends before putting down an offer on a house. It gives you a better idea of which neighborhoods to shop in, how much to bid, and how to set competitive rental rates to attract more tenants without losing valuable profit. On that note, hiring a rental property manager to walk you through these red flags can significantly boost your decision-making process, and help you make smarter investment choices that maximize your returns.
