As investment properties go, there are many choices out there, many of which are good. However, one of the best investments would be single-family rental homes. With record numbers of renters that single-family rentals are putting out on the market, it has become an investment with really high demand. They also have additional advantages like long-term residents and the ability to appreciate over time. The part that would be the most difficult for those who want to own rental properties may very well be looking for a great bargain in an expanding market. But don’t be trigger-happy, especially when the deal seems really good. Before you buy any rental property in Valley Stream, 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. Check the property carefully to make sure there is no hidden damage or that there is no need for major repairs. Unless it’s your plan from the beginning 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?
Regardless of where you’re planning to purchase a rental property, do your due diligence and 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?
Location and price are important, but you shouldn’t neglect to calculate a potential rental property’s rate of return before making an offer. The rate of return, or capitalization rate, is different depending on the place, but it normally falls between 4% and 10%.
To calculate for the capitalization rate for a potential investment property, get your net operating income (rent minus expenses) and divide it by the home’s sale price. Don’t forget to include additional costs like property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the home is located in an area prone to natural disasters.
Usually, it’s a good rule to keep total expenses to about 50% of the gross rents – this is known as the 50% rule. If the property you were thinking of buying doesn’t offer a good return, don’t go for it. There are so many properties out there that will give you a better deal.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, bargain properties aren’t very easy to come by. This is where having a vision and some creativity to achieve that vision really helps. There are some deals that other real estate investors may have passed up but can actually be turned into amazing rental homes. All you have to do is to add value to a property and you can get that good deal.
For example, you can upgrade the interior with modern flooring or new appliances or place a second bathroom in a unit with only one. There are some houses that have dens, sunrooms, carports, or other areas. You can quickly and inexpensively convert these areas to increase the property’s total square footage. All this work would be adding value to your rental property. This way, you’ll be generating the positive cash flow you need.
5. Does the property fit into my niche or area of expertise?
A common thing new investors do is make the mistake of buying property in Valley Stream because the price seems really low. It may seem like a bargain but that may not always be true. Another mistake would be to rush because they promised themselves to meet a certain deadline for their next purchase. But problems can crop up anytime if that bargain property is not part of your area of expertise or if you’ve been pressured to buy a property that has clear warning signs.
It would be wise to develop a deep understanding of one niche or segment of the market. By doing so you can see whether or not an investment property that purports to be a great deal is really so or if it’s just too good to be true. Similarly, waiting for the right deal to come along is also important. Patience is a virtue that is crucial in investing in rental properties.
Even though everyone seems to be buying now, that does not mean you should follow them. 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?
A great rental property is also one that appreciates over time. However, to make sure the property continues to grow in value, you need to have your property managed by someone trustworthy and trained for this specific job. 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 don’t plan to do it yourself, or if you live far from your rental property, you’ll need a property management company to do the work for you— one 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 rush to purchase that rental property in Valley Stream. Instead, make sure that you have the best and most recent information available. Real Property Management Innovation offers a free rental property assessment. This would make the decision-making process a whole lot easier. Make use of this valuable resource by contacting us online or calling us at 516-570-9275 today.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.