Eduard Shapshovich Shares Eight Things to Look For in a Residential Rental Property

1. Avoid “Flipping”

In the residential sales market, the practice of “house flipping” has been popularized. Rental “flipping” also happens, but potential landlords should be advised against it. Buying a poorly appointed house that needs a lot of work could be a recipe for disaster. When a new family moves into this home, and there are significant problems with it, you will experience difficulty fixing these items while the family is still living in the house. This will set you and your renter off on the wrong foot and will make it much more likely that they will move out as soon as their lease is up.

2. Location

As when buying any property, potential landlords should examine the location closely. Profitable rental properties are located in areas where property taxes are low. They have good schools and plenty of amenities. Low crime rates, public transportation, and an abundance of jobs also make an area more attractive to renters.

3. Watch Out for Interest Rates

Residential mortgage interest rates are low for single-family homeowners, but they are higher for investment property owners. Financing your property may require some creativity and compromise. Overall, you will need a large down payment to keep your rates down.

4. Profit Margins

Individual landlords should set a goal of a 10 percent profit return annually. Maintenance should run about 1 percent of the property’s value each year, and other costs should include property taxes and monthly expenses like pest control, landscaping, insurance, etc.

5. Aim for a Low-Cost Home

The residential adage that you should buy the worst house in the best neighborhood does not apply to landlords. Landlords should buy a mid-level affordable home in a good neighborhood.

6. Choose Your Neighborhood Wisely

You should thoroughly research all aspects of the neighborhood before buying a rental property. You need to know everything from the noise level to any traffic problems that could occur. You will want your rental property to attract the best quality renters, and good renters often have many competing listings they can choose from.

7. Tenant Stability

If you are buying a rental property that already has tenants, you could be setting yourself up for success. Long-term tenants are one of the best ways to make money in the rental market. On the other hand, you want to avoid “problem tenants” who cause a great deal of damage and antagonize the neighbors. Find out from your seller whether the current tenants are quality renters. If they are not, you can plan to raise the rent when their lease is up and see whether they are willing to pay the increased costs.

8. Balance Your Risks and Rewards

One of the risks that could be incurred when buying a rental property includes the possibility of having a vacant unit. If you can’t find someone to rent the unit, you still have to pay all of the maintenance and monthly costs associated with it, including your mortgage payment.

Rental Property Can Work For You

If you plan to invest in residential rental property, keeping these eight factors in mind can make your decision easier. Overall, you want to make sure that your investment has the potential to make money. If you invest too much in renovations and can’t rent the unit for a high enough price, you will cost yourself money each month.

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Eduard Shapshovich

Eduard Shapshovich

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I work in real estate development. Buying and rehabbing homes to sell or rent them out. I have a great working relationship with my partner, and tenants!