By Scott Taylor, Agent Mechanics
There are lots of options when it comes to purchasing a rental property, which can make choosing a property a daunting task for a novice investor. If you ask ten experts, you will get ten different responses on what type of property makes for the best investment. My ideal initial investment property is a modest-sized single-family residence in a working class neighborhood. Specifically, I like to invest in single-story, detached single-family homes with three bedrooms and two bathrooms. The backyard should be large enough for the tenant to have some friends over for a barbecue, put up a swing set, kick a ball, and let the dog run around. The neighbors’ yards should be clean but do not need to be showy. Assuming a potential investment property meets these requirements, here are a few other things I consider:
There is no doubting the real estate maxim of location, location, location. And this definitely applies to a rental property, particularly when it comes to choosing an area with good schools, near major area employers, and close to amenities. You may also want to avoid buying a rental that is on, or backs up to, a busy street. When the tenant goes into the backyard or opens their windows at night, they do not want to hear the roar of traffic.
One factor that is often overlooked by real estate investors is a property’s potential maintenance requirements. If the exterior is brick or stucco, that might require less long-term care than wood siding. If the roof is tile, or a newer asphalt shingle, those may last longer and require less maintenance than an older asphalt or wood shingle roof. Copper pipes are less likely to cause plumbing issues than are galvanized pipes.
Tenants love fresh paint, remodeled kitchens, and remodeled baths, so check out the potential competition in an area like new housing tracts, condominiums, and apartments. Newer structures have finishes that are more modern. Thus, the tile in your rental?s kitchen may be serviceable, but it is going to look old when compared to the granite in the kitchen in the competition?s rental across town. I am not suggesting that you replace your tile with granite, but if you can buy a rental property that already has more updates than less, then go for that.
A list of items you might like to have in your rental, in a perfect world, might include:
- Recreational vehicle parking
- Neutral paint colors
- Tile floors (especially since tile does not hold pet odors)
- Mirrored wardrobe doors (because they make rooms look bigger)
You are not going to find the perfect rental property. However, if I were comparing two similar priced rental properties in the same neighborhood, I would try to save some money in the long run and choose the one with more updates and newer neutral paint. The updated and painted property is going to take less of my time and money to get the property ready to rent and will rent quicker.
Whenever I invest in a new real estate market, I always consult with a good local real estate sales professional and good local professional property manager. The real estate sales professional can describe property costs, values, jobs, growth, and future gains in the market.? The property manager can tell me about potential rents, the length of time it might take to find a renter, and he or she can provide a picture of potential renters in the target area. In addition, the property manager, by virtue of working with other rental property owners, may know of a property not currently on the market that an investor may wish to sell.
I research the middle-of-the-market rent price in the area in which I intend to invest. Then, keeping that target price in mind, I search for an investment property that will rent for that middle-of-the-market price.? I want my rental property to appeal to a large cross-section of renters. What is the average rental price in your target area? Get with your local real estate sales professional and your local property manager. Find a property, a neighborhood, and a price range that will put you in the middle-of-the-market.
Your ideal property is going to meet your own needs for location, maintenance requirements, and upgrades.? But no matter where you invest, I would encourage you to try and hit the middle of that market.? That way you have the greatest access to the largest tenant pool possible.