As investment properties go, single-family rental homes are among the ideal available options. With record numbers of renters on the market, single-family rentals are in high demand. They indeed have many other advantages, aside from long-term residents and the ability to appreciate over time. The most difficult attribute with regards to retaining rental properties may just be locating a great bargain in an expanding market. Nonetheless, before you go for it and acquire that rental property in Nashville, heedless of how attractive the deal looks to be, 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. Moreover, the justification behind why the property is listed at a particular price may be considered more relevant than whether it’s an excellent bargain. Investigate meticulously to check that the property does not have undisclosed damage or needs major repairs. Other than in situations where you 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?
Heedless of where you are looking to purchase a rental property, implement your due diligence on the neighborhood and local market first. You will need to have an idea of how many rentals are easily accessible, what the general rental rate is for properties very much like the one you wish to acquire, and whether those rates have gone up or down just recently. Crime rates, nearby amenities, access to public transportation, the local job market, and more are also important aspects of a rental’s location. Prime locations tend to have a good number of single-family rental homes that have fairly low market values but comparatively high rents.
3. What is your expected rate of return?
Not just a rental’s location and price, you should also calculate a potential rental property’s rate of return before making an offer. The rate of return or capitalization rate shows a difference from place to place but generally 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. Also take into account things such as property taxes (which you can gather from the county assessor’s office), Association fees, and any extra insurance necessary if the home is in a place prone to natural disasters.
On average, it’s best to keep total expenses to about 50% of the gross rents – this is known as the 50% rule. In situations where any property you are reviewing doesn’t present a good return, forget it then press ahead. There are various other properties out there somewhere.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, every once in a while going after bargain properties can be arduous to do. This is where some ingenuity and clear vision can aid real estate investors in getting great, quality rental homes that others may have missed altogether. You can make excellent deals by adding value to a property through plenty of ways.
By way of illustration, upgrading the interior with modern flooring or new appliances or attaching a second bathroom to a house that previously only has one. Countless homes have dens, sunrooms, carports, or other areas that can promptly and without too much cost be converted to increase the property’s total square footage. By adding value to a rental property from this perspective, you can gain the type of positive cash flow you yearn for.
5. Does the property fit into my niche or area of expertise?
One of the most serious misjudgments new investors do is purchasing a property in Nashville entirely because it seems like a bargain or because they decided on a certain deadline for their next purchase. Moreover, troubles can abruptly come up if that bargain property is outside of your area of competency or you are pushed to buy even if there are clear warning signs.
It’s a splendid point to develop a deep understanding of one niche or segment of the market for the reason that when you face what looks like a great deal on investment property, you can appropriately discover whether or not it’s too good to be true. The same thing, continuing with persistence to wait until such time that the right deal turns up is a necessary attribute of investing in rental properties.
Even if everyone else appears to be buying now does not mean that you should be doing the same. Determining if various prospective properties meet your goals and field of expertise will make it possible for you to keep away from the most common investing mistakes.
6. Who will manage the property?
A flourishing and profitable rental property is also one that appreciates over time. Nevertheless, to check that the property continues to grow in value, you desire to have someone who is responsible and an expert in administering your property. If you have the talent and time to attend to your property yourself, you’ll have to warrant that you’ll be present for various midnight emergencies or repairs.
In the case that you are not planning at all to do it yourself, or if your rental properties are really far from where you reside, you should have a property management company that comprehends your investment targets. Professional property management companies like Real Property Management have grown to become a reliable, nationwide resource for rental property owners like you.
Before you opt to buy that rental property in Nashville, you should see to it you have the best and most recent information available. Real Property Management Investor’s Choice imparts a free rental property assessment that can be of service to render your decision-making practice hassle-free. Apply this quality resource by contacting us online or calling 615-810-9578 today.
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