Individuals looking to profit from land ownership might consider buying a residential rental property. For first-time landlords, navigating the rental market can be overwhelming. Investing in the right real estate can be lucrative, but buying the wrong building can turn into a financial burden. Before purchasing a rental complex, investors should investigate several factors.
The town or neighborhood of a rental property might impact the types of tenants choosing to reside there. An apartment complex near a college might attract an abundance of students, and a building in the downtown area of a city may attract professionals working down the street. The desirability of the neighborhood plays a factor in how long units remain vacant. A building in an up-and-coming or popular location may entice prospective renters to apartment openings, while a neighborhood that is notorious for being unsafe might make it more difficult to fill vacancies.
Investopedia noted the importance of proximity, depending on buyers' intentions regarding management. If they plan on managing the premises, they should inquire about properties that are close to where they live or look at options where they can live on site. Many investors purchase two-story or split level homes and rent out a floor while living on the other one; in these instances, landlords have immediate access to the rental property. If they expect to hire a property manager, they don't have to worry as much about where the land is situated in relation to their address.
Considering investors make a great deal of their money from rent, they should learn just how much they will pay in taxes. The district's assessment office should have most of the relevant tax information on file. It is also worth noting that property taxes can rise over the years. If the area is desirable, a hiked rent could suffice to make up for any shortcomings, but this strategy could pose a problem if real estate taxes increase in areas in which landlords might have trouble finding renters to agree to a higher rent.
Owning an apartment complex in a crime-ridden area could scare away prospective renters. The local police department likely has updated statistics regarding the frequency and degree of crime in a city and neighborhood. Before buying an investment property, future landlords should always look into these numbers.
Before buying investment real estate, individuals should consider their rent price point. To formulate their estimates, landlords should compare the average costs in the area. From there, they should look into what amenities and features these units include. Buildings with laundry appliances in each apartment may charge a higher rent than apartments without this component, for instance. After deciding a fair rent, prospective investors can determine whether or not the property provides a return on investment.
1 percent rule
It's true that sometimes people need to spend money to make money. However, balancing the amount spent with the realistic monthly earnings is crucial to ensuring landlords they are making a strong investment. According to Forbes, investment properties should provide a return on investment. This rule states that the monthly rent divided by the cost of the land is .01 or 1 percent.
The construction of new buildings and parks can incentivize renters to move to certain areas. Other times, new structures can make an area less desirable. Buildings that obstruct an apartment's view or replace important features, like green areas or parking lots, may make renters hesitant to renew their leases. The city's planning department should have copies of new development plans in each neighborhood. Prospective landlords should ask a city employee about information involving development strategies within a few blocks' radius from the prospective investment property.
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