Eduard Shapshovich Shares Eight Things to Look For in a Residential Rental Property
Becoming a residential landlord can be an excellent opportunity to make a stable income. If you are interested in buying residential property for a rental, there are many considerations that you should take into account. From the property’s features to the surrounding area, you should be aware that many variables go into making a decision.
Eduard Shapshovich, an experienced entrepreneur and landlord from California, details the eight things you should look for when buying a 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.
Also, renovating distressed properties for rentals will likely cost you a great deal more money than you expect. Hidden problems are one of the worst surprises that potential landlords can encounter. It is a better idea to buy a move-in-ready building or choose a building that only needs cosmetic updates.
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.
Another risk that you might encounter is that tenants could be challenging to deal with. If you can afford to use a property management company, you might wish to do so. However, some landlords prefer to do the work themselves and take a more hands-on approach.
One of the most significant risks of real estate, in general, is that it is not a liquid investment. This means that you may have a great deal of cash tied up in your property that you can’t quickly get to if you need money.
When considering risks, you should also consider the rewards. Passive income means that you can earn extra money while working in your day job. Rising real estate values indicate that your investment will increase in value. Unless there is another crisis, housing values are generally more stable than stocks and other securities.
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.
Eduard Shapshovich encourages all potential landlords to do their due diligence and thoroughly research the buildings and neighborhoods they plan to invest in.