As investment properties go, there are many options you can choose from, but one of the best would be the single-family rental home. With record numbers of renters on the market, the demand for single-family rentals is very high. They also have additional advantages like long-term residents and the ability to appreciate over time. The most challenging part about having rental properties is probably finding 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 Boerne, 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. But the fact that the price is low may mean that there is a reason behind its price. Knowing this reason is more important than the bargain pricing. Do a thorough check on the property to ensure that there are no hidden damages or any need for major repairs. Unless you were looking 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. Other things you need to know to include how many other rentals are nearby, what the usual rental rate is for properties like the one you want, 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?
On top of assessing the location and price, you should also calculate a potential rental property’s rate of return before making an offer. Although it changes from place to place, the rate of return (or capitalization rate) normally falls between 4% and 10%.
To figure out 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. Remember to include all costs on top of the sale price; things like property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the property is in an area prone to natural disasters.
It would be a good idea to keep total expenses to 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 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, sometimes it’s quite difficult to find bargain properties. 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. You can do that by adding value to a property, and there are many ways to do that.
For instance, upgrading the interior with modern flooring or new appliances. Another example would be to add a second bathroom to a home that has only one. There are homes with dens, sunrooms, carports, or other areas which can be converted without great cost or time. Converting it would increase the property’s total square footage. What this does is add value to a rental property. This additional value can bring in 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 Boerne 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 you’ll meet a lot of problems if that bargain property is outside your wheelhouse or if you feel pressured to make the purchase despite seeing some 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, holding out for the right deal is an important part of investing in rental properties. When it comes to this type of investment, patience is indeed a virtue.
Just because everybody seems to be buying now does not mean that you should follow the herd. See to it that your prospective property matches your goals and field of expertise. This will help you avoid many of the common investing mistakes.
6. Who will manage the property?
Great 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 skills needed to manage the property yourself, the next thing to ask is if you are available to tackle any midnight emergencies or repairs that may arise.
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.
Before you make the decision to buy a rental property in Boerne, you should be sure that you have the best and most recent information available. Real Property Management Alamo 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 210-600-5672.
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