Buying a rental property is arguably the best long term investment for your wealth-building strategy. For this reason, buying residential rental properties also requires that investors have a bird’s eye long term outlook when assessing the potential and future potential properties. Focusing too much on rental rates can distort a rental property’s long-term investment potential and unnecessarily limit your purchase options. To make the best possible residential real estate investments, it’s important to take a holistic view of each potential rental property within the context of the current (and future) real estate market. We wanted to outline some helpful tools and perspectives in this process.
Choosing a rental property involves making a number of important decisions and weighing the risks involved like location. It is especially important to avoid short-term thinking when buying a rental property and look beyond simply comparing your anticipated rental rate to your mortgage payment. Industry experts say that there are as many as ten different things to consider when beginning your next property search. For example, the neighborhood in which the property is located, the local job market, and nearby amenities are all important elements to consider when choosing a rental property. The location of a property is important because it will determine what type of tenants you will be able to attract to the property and will greatly impact your vacancy rate. The local job market and proximity to amenities will also affect the type of tenants drawn to your rental, as well as impact your property values. Also if the job market around your property is expected to increase during the next 10 years or decrease then it gives you information to if the property is a reasonable investment.
The value of the property, both present and future, can be an invaluable piece of information when choosing a rental to buy. The house’s potential for appreciation must be one of the long-term factors considered when making your decision. Even if the property isn’t valued highly at the present, it potentially will be five or ten years down the road. Another related consideration is future development in the area. When buying a rental property if it is in a place where lots of development is expected than you can expect the appreciation to increase. Also another aspect to be aware of is new construction. It can have a significant impact on property values. It is important to gather as much information as you can about local or regional plans to develop or renovate nearby areas.
While assessing the market and local conditions are important, investors cannot afford to overlook things such as property taxes, the number of listings and vacancies in the area, and average rents. A detailed market analysis can provide rental property owners with a window into the near future and, when combined with the other information gathered, provide a solid base upon which to estimate future performance. In the business of buying a rental property knowledge is power and when you have done your research you have the best chance for the most return on your rental investment.
Knowing how much rent you can get right now for a rental property versus the mortgage payment and other costs is an important number to have while making a new investment. But taking a holistic view of each prospective property and evaluating all of the significant factors can help you make wise investments in properties that are likely to grow in value year after year. At Real Property Management, we can help you plan a long-term investment strategy designed to maximize your returns over the entire span of your property investments. Our professionals assist residential real estate investors through a range of quality services, applying industry best practices to ensure that each property you buy will help you meet your long-term financial goals.
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