Buying rental property can be an excellent decision and the better informed
you are, the more likely you’ll have favorable results. The following
suggestions can help you with your decisions.
Real estate is a long term investment affected by supply, demand and the
economy. It isn’t an investment that is easily converted to cash.
The costs to acquire and dispose of real estate are sizable and need to be
spread over years to minimize their effects on the rate of return.
Invest in average price homes or slightly below average price to appeal to
the broadest market not only when you are renting but later on when you sell it.
The average price is relative to the market you are in and those specific
Lower-priced homes will rent for more relative to higher-priced homes.
There is an inverse relationship between rent as a percentage of the price.
As the price increases, the rent as a percentage of the price decreases.
For example, a $200,000 home might rent for $1,750 a month or 0.88% where a
$400,000 home might only rent for $2,250 a month or 0.68%.
Choose predominantly owner-occupied neighborhoods because when you sell the
home, it will appeal to a homeowner who will most likely pay a higher price for
the home. Homes in predominantly tenant-occupied neighborhoods tend to
sell to investors who pay lower prices and will not be emotionally involved with
Purchase a property with the idea of selling it in mind. You may be
able to get a property for a bargain price today but if it is due to a
functional obsolescence like a bad floorplan or not enough bathrooms, that
problem will still be there when you’re ready to sell the property.
Identify what the problem is and what solutions are available. The
property may rent fine in that condition but before you sell, it will need to be
Get the home inspected before you purchase it. Having the property
checked out can save thousands in unanticipated expenses.
Consider getting a home warranty on your rental. The annual premium can
limit the out of pocket expenses for repairs and maintenance.
Risk can be minimized by understanding the investment and what is involved in
the acquisition, operation and disposition. For the typical homeowner,
rental property is something that they can relate to because of the similar
attributes of the home they live in.