All investors share one common goal when it comes to investing, “to achieve financial freedom”. Investing in real estate presents its own challenges and doesn’t come without lot of work. Buying the right properties is a challenge in itself, but if you have a pulse on your market and you know how to properly buy specific properties before acquiring them, then you might just be making one of the best financial moves you could ever make.
One of the most tried and true ways to succeed In Real estate is by acquiring rental properties, at least if you do things the right way from the start. What is the probability of doing everything right, especially if you are just starting out? Sometimes you really have to learn through your own experiences and unfortunately sometimes we have to learn them the hard way. Most of the the time the hard way comes in the form of being your own property manager. If you are thinking about being a landlord, here are some tips that you might want to consider. Remember that not all properties make good rentals, so make sure you watch out for these 7 Important Things.
- Neighborhoods- Location matters a lot in Real Estate, more importantly in Rentals. The location will dictate the quality of people that you are going to attract as tenants. For example, you have chosen to buy a property near a University. Then most likely, your tenants would be made up of students and would have a high probability of vacancies during summer time.
Also what’s crucial is your management plan. Are you going to manage your rentals full time or are you hiring a property manager to do it all for you? Because if you intend to actively manage then you have to make sure that the location you are choosing will be on a close proximity to you. Make sure that you do a research about how the neighborhood will fare in a long term scheme (Around 5 to- 10 years) and see if they are in line with your goals.
It is also important to know what Amenities are in the area or what the Crime rate is because nobody wants to live in the ghetto. Check the neighbourhood for malls, theatres and public transport hubs that could serve as perks for your tenants. Study the employment rate. Locations with growing number of jobs would be attracting to more people which of course would mean a bigger tenant pool for you. Good thing we have a strong economy and groth rate here in Orlando!
- Your Goals- Just like anything in life, buying a rental property would work well if you have clear objectives you are trying to achive. If you know what you want then it’s easier to map out an action plan to achieve it. Think about your short and long term goals for this property and your entire portfolio. Do you want to keep this property as a constant stream of income for you, or hold it for a few years while the appreceation increases and sell it later on? Your plans may not be realized all the time but your Goals are your constent remainder to staying on track.
- Property Taxes and Rents- Remember your common goal? Yes, Financial Independence! So you have to make sure that at the end of the day, we are earning and not losing money. Knowing the Numbers is the key, they impact your cash flow and we want to make sure that we have an idea on all the costs involved. One of the surprises that may come to a new landlord is their property taxes. You need to be aware as to how much you might be paying in taxes. One way to get ready for this is to visit the county tax accessors office and find out all the tax information on file or talk to a homeowner within the community to get a ball park range as to what you may be paying.
Another thing you need to know is how much rents are going for. Not knowing the rents could directly impact your cash flow. Find out what the average rent rate is in your area and see if they will be enough to cover taxes, mortgage payments and other expenses such as “maintenance”. Study the area very well, it might be good to know that you can afford it now but what is affordable now could cause you to lose thousands of dollars if you are not being careful.
- Your Market- If you have already decided which location you are going to buy in, then you have to make sure to find the “standard way of living”. If the end objective is to charge a little over market value for rents just make sure that you are not going over board on price for your rental. Not everyone will be willing to shell out extra cash to pay for comfort. So learn what is acceptable and what makes sense for your target markets.
Profile your potential tenants and know what they are looking for in a home, be on the lookout for things such as how many bedrooms are usually being sought out in your area. At the end of the day, tenants are not far from homebuyers, they still would be looking out for the “Space“ that they need.
- Parking- Recently, there have been an increasing number of tenants who require an apt parking space. Make sure that you consider this, because this will allow you to charge a higher rate compared to others and make your property stay in demand.
- Natural Disasters- Natural Disasters results in loss of life and thousands in property damages every year. Study the area well, and investigate if it is in a flood or earthquake prone zone. Insurance is a must so think about it. It will be a deduction on your returns, so know how much you will need to carry.
- Your Emotional and Financial Readiness- Owning a rental property is a great way to financial freedom and a great deal of profit but it is not for everyone! Dealing with tenants might be stressful enough, there will be occurrences of late payments, unexpected and COSTLY repairs, family drama and all that could possibly happen. So before you jump in the pool make sure you are 100% financially and emotionally ready. If you have already found an ideal rental property, keep your expectations realistic and firstly guarantee that your own pocket is in a healthy enough state to wait for the property to produce cash flow rather than needing it desperately.