If you are looking to add a real estate rental property to your investment portfolio, now is a great time to do it. As interest rates are still historically low, it's inexpensive to borrow money right now. Rental properties are in high demand, as many people are looking to rent properties to live in. According to ipropertymanagement.com, only 67.4% of American adults own their own home. Here are a few tips you'll want to consider finding the right investment property.
Work With a Broker Who Has Experience
The first step to finding an investment property is to work with a real estate broker who has experience with investment properties. Your broker should either own some investment properties him or herself or have experience helping other investors find investment properties that are smart choices. You will want to work closely with your real estate broker and your lender if you're planning on a mortgage. Have your broker prepare a market analysis on any property you are considering. You'll need to consider the property value and expected monthly rental. The broker can help calculate the property's return on investment (ROI.) You will want to be sure the rent amount is higher than what your total monthly payments will be including principal, interest, taxes, insurance and monthly homeowner's association fee. You will also want to leave room for the cost of any unexpected repairs and regular home maintenance.
Monthly Homeowner's Association Fees
Almost all condominium and townhome communities have monthly homeowner's association fees. In certain communities these fees may be so high that it just doesn't make sense to purchase one as an investment property. It may be better to purchase a single-family home in a community that doesn't have an association fee. Or, perhaps, in a subdivision that has a nominal annual fee that doesn't price the property out of the market as a smart investment choice.
What Shape is the Property In?
When looking for an investment property, you will want to be sure the property is in good shape. Start with the exterior and make sure that it doesn't need too much work. It can be costly to hire a landscaper to trim trees and bushes, get rid of weeds in the landscaping beds and grass, and so on. It's better if the property doesn't need an entire interior and exterior paint job. Hopefully, the flooring and carpeting don't need immediate replacement. The best investment properties are ones that are move-in ready. Also, be sure to have a home inspection to make ensure the home inspector doesn't find any major defects or safety hazards that will be costly to repair.
The Ages of the Mechanicals and Other Major Home Components
It's also important to know the ages of the mechanicals such as the furnace, air conditioner and hot water heater. These are big ticket items and will dig into your profit if they need to be replaced. Find out the age of the appliances as well. If they are old, chances are they may need replacing soon. Other components of the home such as the roof, siding and windows can also be very expensive to replace.
A quick, simple rule of thumb is the one-percent rule. According to an article on Forbes.com, when searching for an investment property, use the one-percent rule to determine if a property deserves a second look. The one percent rule simply means that a property should be able to rent for at least one percent of the property value, although, this doesn't always hold true in all parts of the country.