Are You Ready to Be A Landlord?
Think rental property might make a good
investment? It can -- if
you choose wisely!
Just as with any real estate purchase, location counts! Your best bet for a
solid rental property will probably be in an established, high-demand rental
area, with easy access to schools, universities, shopping, and other amenities.
Avoid "white elephant" buildings with an unusual design or location, or isolated
units stuck out in the boondocks. Look for a location that you would find attractive
if you were renting.
Once you select a general area, you'll need to decide whether you prefer single-family
homes or multi-unit apartments. Both can make good
rental properties, though
there are some important differences. Single-family houses are often in shorter
supply as rentals. And because they're more desirable from a tenant's standpoint,
they generally command a higher rent per square foot than apartments. A single-family
home will also have a broader resale appeal when it comes time to sell. But
it will be harder to buy a single-family residence at a price that allows you
to break even or generate a positive cash flow unless you're prepared to invest
a hefty amount down.
Multi-unit apartment buildings, by comparison, may experience a somewhat higher
turnover rate than a single-family house. But they are often priced to allow
you to generate a close-to-break-even cash flow with a smaller down payment.
Thinking seriously about a particular property? Run the numbers carefully before
you decide to buy. Ask the seller for information about the building's vacancy
rate over the last 2-3 years, and factor in anticipated vacancies when you
estimate cash flow. Be sure to include a reasonable allowance for maintenance.
Copies of recent maintenance records can tell you not only what has been done
to the building lately but also what hasn't.
TIP: For multi-unit buildings, make sure you're given the
opportunity to inspect all units personally before closing, not just a "representative" apartment.
TIP: During the walk-through, ask the current tenants if
any repairs need to be done to their unit, and listen to any complaints about
maintenance. Unless they're fixed before closing, these are things you can
expect to hear about later!
TIP: Looking for a bargain? Chat with a realtor whose
office also handles rental property management. They may know of owners anxious
to unload a rental at a discount price! |
