It’s important to consider the risks of renting a property in a particular location before committing. This is critical to avoid renting a property in an area with a lot of crime. For instance, according to Eric Strand of Strand Law Office, LLC, about 35,000 arrests were effected in Pennsylvania in 2019. Renting a property in an area such as Pennsylvania means taking on a risk you could have avoided with some research. Considering these statistics, researching before buying a rental property is critical if you’re keen on saving money. Your research should include, among other things, the following.
1. The Condition of the Rental Property
If you have the time and patience, a fixer-upper home may be a great buy, especially if the price is right. However, you also need to know if buying the home makes financial sense, as the wrong decision can lead down the beaten path of costly repairs. If you ignore the repairs and a tenant suffers an injury or gets ill on your property, you could face a costly compensation suit.
2. Rent Growth Trends
Saving money means buying a rental property located where there’s a strong rental demand. If the rent prices have been increasing steadily year after year, that indicates that rental property demand in the area is strong. In some cities, there are more renters than property owners, indicating a high demand for rentals. Areas where home properties are high report a higher percentage of renters. Despite fairly affordable home prices in other areas, the demand for rental properties could still be still high. If an area has numerous vacant homes listed, the market for rental homes is declining.
3. Neighborhood Ratings
Once you decide on the best city to buy a rental property, check the neighborhood rating. There are different levels of rewards and risks for different neighborhoods. These impact occupancy levels, rental rates, and home valuations. Everyone is looking for a safe neighborhood where they can live and thrive, not where they’ll be exposed to burglaries and muggings.
4. Property Taxes
Some states attract higher property taxes than others, which can seriously affect your rental property cash flow. Should there be a change in home use from primary to rental property, tax rates for properties may also rise in some municipalities. Invest in areas with stable property taxes, changes in use notwithstanding.
5. Maintenance Costs
The condition and location of the rental property will determine how much you’ll pay for maintenance costs. According to proponents of the 1% rule, you should allocate a percentage of the property’s value to yearly maintenance. Upon moving in, get the new tenants to pay a security deposit, which you can use to pay for repairs should they damage your property beyond the usual wear and tear. Of course, damage caused by natural disasters such as flooding or fires and structural issues with the house is the property owner’s responsibility. It’s important to factor in such disasters since, according to the National Fire Protection Association, over a quarter of all fires in the U.S. occur in residential homes.
6. Utilities
There are basic utilities such as electricity and gas that tenants are responsible for. However, sewer and water costs are sometimes included in the rent. If utilities are to be included in the rent, get a utility company to provide you with an estimate of monthly usage. Look for energy-efficient ways of controlling your utility bill, saving you money in the long run. A good option is to use solar cellular shades, which, according to The Washington Post, can reduce your energy bill by as much as 20%.
While rental property is an excellent way to earn an extra stable income, don’t rush into it. Consider the risks involved and determine if it’s worth the investment. The first duty is to understand what you’re getting into and whether it’s worth your money and time in the first place. Next, consider the costs, potential income, and the profits you hope to make.
If you’re keen on saving money, you may want to hire the services of a property manager to help you lower the risks. They understand where to shop for high-quality tenants. Also, seek the services of a CPA (certified public accountant) with experience working for property owners. Their advice is critical since they have had good and bad experiences with rental property owners. They understand what works and doesn’t when buying a rental property, and their advice on maximizing rental income potential is invaluable.
