When done right, buying an additional rental property can be a smart financial decision. From the added income, tax breaks, and equity gains; additional properties seem like a no-brainer decision for many.
But, a big return is not guaranteed. That’s why it’s important for owners to think strategically before buying. Things like market trends, demographic data, and personal finances all play a role in determining the outcome.
Given how much is on the line when buying, we’ve outlined our top things to look out for when investing in additional rentals.
1. Location
As the saying goes when it comes to real estate, “location, location, location!”. And, it is the most important factor to consider when buying an additional rental.
When it comes to location, it’s best to determine what type of property you want to invest in as it can determine where you should be buying it. For example, if you’re thinking of a vacation home, you’ll likely want it to be somewhere easily accessible that sees a high volume of tourists.
Further, you will need to look at recent sales trends and competition. If there is a high amount of demand in the area but not enough supply, you can get away with getting a fixer-upper as you will likely not have issues filling it. However, in a less competitive market, investing in a property that needs work will likely result in a loss of profit as you’ll need to renovate to make it attractive.
2. Variable Expenses
It’s not just the final selling price you should look at when dealing with a rental. That’s because there are plenty of variable expenses associated with it which should be strongly considered before investing.
Variable expenses include things like maintenance, property taxes, insurance, management fees, HOA costs, cleaning, landscaping and so much more. Of course, all of these factors will be further influenced by things like the area that the property is located in and the condition of it. For example, a brand new one-bedroom-condo will likely require much less upkeep compared to an older multi-unit complex.
Therefore, owners should be taking a hard look at their own financial records to determine if they can afford these additional fees.
3. Appreciation Value
A smart rental investment will appreciate in value over the years. That’s why it’s important to take your time when looking to ensure these values will increase. And, to not always be swayed by low-costing properties.
Firstly, you will want to look at the appreciation potential that you can get from doing cosmetic renovations. Simple things like painting, flooring, landscaping, etc. can instantly increase its rental fee.
The second factor you should consider is the property’s long-term appreciation potential. This is how much the property will be worth if you choose to sell it down the road.
To find this information, you should be looking at the neighborhood and its growth trends. This data is important to determine how desirable the location is now, and if it is predicted to be trending upward.
4. Demographic
Another important factor that owners should look at when buying an additional rental property is the area’s demographic. After all, the type of property you purchase should also reflect the area as it will rent out quicker.
For example: if you’re buying in an area where renters tend to be single twenty to thirty-year old’s, buying a 4-bedroom house might not make sense.
Ultimately, each type of property comes with a unique set of maintenance, management, and financial demands. That’s why it’s important to determine what makes the most sense for you.
We believe that finding a great rental property is possible. With the right information, industry knowledge, and help, you too can enjoy the perks of a high return. For more information, consider getting in touch with a member of our team at 317-546-3482 or emailing info@midwestpmi.com
