Before buying your first rental unit, real property management experts recommend taking some time to learn the trade. This can help you avoid mistakes that lead to losing money on your rental properties.
Some of the steps you can take include:
Another essential thing to consider as you are getting started with a rental property is the return on investment (ROI). You can evaluate the profitability of a property and its ability to generate ROI by doing the following:
While that might seem like a lot to learn, this foundational knowledge about how to succeed with rental properties and analyze returns gets you started on the right path!
Understanding the numbers is a significant factor when it comes to your property investment decision. To determine ROI for a property, investors need to understand the costs, income, and other factors that can impact a property.
When running your ROI calculations, be sure to include property taxes in your ongoing operating costs. If you’re not sure where to find estimated costs for a potential investment property, look online for property taxes in the area. Usually, the property listing will provide an estimate of the taxes or show the tax history. You can also contact the municipality office and ask them directly how much the taxes are expected to be.
So, if you find a property that has a high tax rate but otherwise seems to have good potential, should you still consider it? A higher-taxed property will add to your expenses and could affect your ROI. However, it could mean the house is in a better class neighborhood and will generate a higher rent and better tenants. It may balance out in the end, so it’s best to do the math before deciding.
However, lower tax rates may indicate the house is in a questionable area could make it difficult to find good tenants or set a competitive rental rate. This isn’t always the case, but it is something to consult a property management company about. They can assist you in making the best decision when selecting your investment rental properties.
Insurance is another expense property owners must subtract from returns, so you need to know just how much it will cost for appropriate landlord insurance policies. The property’s age and location are two factors that can impact the insurance rate. For example, you might pay more in insurance premiums for an older home that needs improvements.
High-crime areas will also increase your insurance rates because of the potential for break-ins and property damage.
In addition, an area prone to earthquakes, flooding, or other natural disasters can cause exorbitant insurance costs that will eat into your profit. So, before you take the leap and purchase a house with any of these issues, let “property management near me” help you weigh the pros and cons of doing so.
An area's job market also plays a significant role in how well a rental property will perform based on your goals. People moving into the area need to know there are steady jobs available to provide them an income. If the job market is sluggish, your property might not hold a competitive rental rate or stay occupied.
A booming job market provides tenants with a reliable source of income and gives them the resources they need to support themselves and pay the rent. When purchasing properties, a real property management company will assist you in evaluating the job market to ensure you’re buying a property in a location in need of good housing to support job growth.
The neighborhood you choose for your rental investment can make a big difference in the success of your venture. Neighborhoods can be categorized as Class A, B, or C.
Class A properties are high-quality properties. These make great homes with luxury appeal, but they aren’t always the best for an investment property because of the higher price range and high maintenance costs.
Class B properties are middle-of-the-road homes. These are some of the best investment choices for rental properties because they are reasonably priced and attract many different types of renters with a range of affordabilities.
Class C neighborhoods are often in “run-down,” high-crime areas of town. While property managers recommend exercising caution before investing in Class C properties, there may be some worthwhile reasons to consider investing in a property in this classification. For example, if you have several Class B rental units and want to diversify your portfolio, one Class C property might be a good option.
Keep in mind that class C properties often have high turnover and vacancy rates. You might find a fantastic home, but it’s in the middle of a “not-so-great” neighborhood.
Some factors that can play a role in an undesirable community for real estate investing include:
It’s vital to evaluate every aspect of a neighborhood when deciding on a property to purchase for your next investment. A property management advisor can help you with a rental market analysis for potential properties. This shows the estimated rental rate for a particular property while also factoring in market conditions and details about similar properties nearby.
You also may notice specific trends in the neighborhood, such as a high or a low number of vacancies. When seeing rental trends, investigate them further to determine what they could mean for the property you have in mind.
A high number of rental vacancies could mean that the area is near a college and follows a seasonal cycle. However, it could also indicate a decline in the overall area. A property manager can help you analyze vacancy rates and apply research to potential income.
Discovering amenities near the property you’re considering is another essential aspect of identifying the best rental properties in Seattle. A healthy set of local amenities can attract tenants to the area, while a lack of amenities can leave your property in an undesirable location.
Some of the amenities to consider when searching for the perfect property include:
While a good property doesn’t have to be near everything, a good mix of nearby resources can help elevate your property to attract better renters.
Whether your target market is families or not, properties near good schools often pay off for investors! Access to top-tier schools is an essential quality renters with families look for when renting a home. However, even if you never have tenants with kids, homes near good schools have better property values. In addition, you can often charge higher rent and see a better profit when it’s time to sell a property that has proximity to excellent schools.
You can learn about schools by using online tools like Niche.com or schooldigger.com. A Seattle property management company also has good insights into how schools might impact the returns for a potential investment property.
When rental property owners prepare to purchase a new investment, they might not be thinking about what will happen in the future for the area. However, it’s essential to consider future developments in the area and how they could impact your returns.
Whether it’s new apartment buildings, storefronts, a new housing development, or something else, new developments can have an impact on property values and vacancy rates. However, a lack of development can indicate that an area won’t experience growth—and won’t attract tenants or competitive rental rates.
Keep in mind that not all development is good, so work with a property manager to assess potential development near a potential investment property.
Don’t play a guessing game when choosing a new rental property for your portfolio! Do things right by hiring a property management company and learning what to look for in an ideal rental property. For help right now, download a free copy of the “Biography of the Perfect Investment Property.”
