As investment properties go, there are many opportunities you can get into, but one of the best opportunities would be single-family rental homes. With record numbers of renters on the market, the demand for single-family rentals is very high. They also have other pluses, like long-term residents and the ability to appreciate over time. The most daunting part when it comes to rental property ownership might just well be finding that great bargain in an expanding market. However, don’t pull that trigger just yet, especially if a deal seems too good to be true. Before you purchase a rental property in Hartford, it’s important to ask yourself six key questions.
1. Why is the home listed at the current price?
A good deal on an investment property often starts by finding properties listed below market value. However, although a property may be listed at a really affordable price, it just might be hiding the real reason why it’s such a bargain. It’s important to know the reason behind the pricing. Do a thorough check on the property to ensure that there are no hidden damages or any need for major repairs. Unless you purposely are going to invest a large sum of money into fixing it up, you’ll want to avoid a property like this. Anything spent making the property habitable must be factored into your rental margin, so why the property is underpriced matters.
2. What is the state of the local real estate market?
No matter what location you plan to purchase a rental property, you need to do adequate research on the neighborhood and local market first. You’ll need to figure out how many houses nearby are rentals, what the average rental rate is for properties similar to the one you have in mind to buy, and if those rates have gone up or down recently. Crime rates, nearby amenities, access to public transportation, the local job market, and more are also important aspects of a rental’s location. The great locations are usually the ones with a moderate number of single-family rental homes that have relatively low market values but comparatively high rents.
3. What is your expected rate of return?
In addition to making sure the rental you want to buy has a good location and price, you should also calculate a potential rental property’s rate of return before making an offer. The rate of return, also known as the capitalization rate, depends on the location, but it often falls between 4% and 10%.
To get the capitalization rate for a potential investment property, calculate your net operating income (rent minus expenses) and divide it by the home’s sale price. Don’t forget to include the expenses on top of the selling price. Include the property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the house is in an area prone to natural disasters.
The smart move would be to make sure total expenses are about 50% of the gross rents – this is known as the 50% rule. If the property you were hoping to buy doesn’t offer a good return, just leave it. There are a whole lot of other properties out there that offer better deals.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, sometimes it’s quite difficult to find bargain properties. This is where real estate investors with vision and creativity can be a step ahead because there are good deals out there that others may have passed up but actually have the potential to be great rental homes. All you have to do is to add value to a property and you can get that good deal.
As a case in point, suppose the house has only one bathroom, you can add a second bathroom to increase its value. You can also upgrade the interior with modern flooring or new appliances. Some homes have dens, sunrooms, carports, or other areas. These can be converted to increase the property’s total square footage, and it wouldn’t have to cost a lot or take too much time. All this updating and renovating is actually adding value to a rental property. What this helps do is achieve that positive cash flow you need.
5. Does the property fit into my niche or area of expertise?
One big mistake that new investors usually make is to buy a Hartford property because the price is low. They may think they’ve found a bargain but that isn’t always the case. Another thing that may rush new investors is imposing on themselves a certain deadline for their next purchase. But there may be a lot of problems you’ll encounter if that bargain property isn’t in your field of expertise, or if you feel pressured to go on with the purchase even though you’ve seen clear warning signs.
It would be prudent to develop a deep understanding of one niche or segment of the market. This way, when a great deal on an investment property comes up, you can make the judgment call whether or not it’s too good to be true. Likewise, patience is a must so you can wait for the right deal to come along. This is an important aspect of investing in rental properties.
There will be seasons where it seems everyone is buying now, but that doesn’t mean you should follow the trend. Make sure that any prospective property you have is in line with your specialty area and helps you achieve your goals. Keeping this in mind will keep you away from most of the common investing mistakes.
6. Who will manage the property?
Profitable rental property investment is also one that appreciates over time. To make sure that the property keeps on growing in value, you need a professional who is trustworthy to oversee the property. If you have the time and skills to handle your property yourself, you’ll also need to make sure that you can be called on for any midnight emergencies or repairs.
If you’re more comfortable having someone else do the management, or if your rental property is far from where you live, then you’ll need to get a property management company that understands your investment goals. Professional property management companies like Real Property Management have grown to become a reliable, nationwide resource for rental property owners like you.
Don’t be too hasty to buy that rental property in Hartford. Instead, see to it that you have the best and most recent information available. Real Property Management Hartford Metro/Greater New London offers a free rental property assessment. This would make the decision-making process a whole lot easier. Make use of this great service by contacting us online or calling us today at 860-316-4388.
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