5 Things to Consider Before Buying a Rental Property

Did you know that 10.6 million Americans earn rental income from investment properties? 

While some manage their rental properties independently, others receive help from professional property management firms. Hiring a property manager will cost a percentage of the monthly rental income. But these third parties can help find good tenants, keep properties in good shape, recommend upgrades that can warrant boosting rent, provide customer service, and more.

Many people gravitate toward rental property ownership because of the passive income potential. That said, wearing the hats of property owner and property manager will make that income anything but passive since being a landlord is not for the faint of heart. So, retaining the services of a property manager can help ensure that the “passive” in passive income is truly passive.

If you’re in the market for a rental property in Baltimore, the surrounding area, or elsewhere sooner rather than later, here are five things to consider before tabling an offer for any real estate.

1. Location, Location, Location

You may have heard that real estate is all about location, location, location. Yes, all three count. It might seem like hyperbole, but it’s not. Before buying any investment property, you need to research the neighborhood. Find out the dynamics of the rental market, the renter demographics, and the vacancy rates. Another benefit of working with the right property manager is you can, even before buying a property, get some feedback that’ll help you make an informed choice.

2. Amenities

It’s also vital to consider the amenities in the area. For example, if you’re buying a single- or multiple-family rental property, you’ll want to consider amenities like the following:

Schools

Shopping centers

Grocery stores

Libraries

Gyms

Movie theaters

Public transportation options

Families that make up your target demographic will prize these amenities and are more likely to consider your rental property if they have access to the right amenities.

3. Future Developments

You should also be mindful of future developments that can impact, positively or negatively, the value of your investment property. You can research to learn what construction or development projects are on the agenda for whatever city you want to buy a rental property in. Doing this can help you avoid making mistakes that jeopardize your investment.

4. Costs

It’s a mistake to think that the purchase price is the only cost that matters. Sure, you don’t want to overpay for an investment property. Doing so might put you at a disadvantage even before you find your first tenant. But in addition to considering the purchase price, you should remember the costs associated with getting your rental property move-in ready for tenants. It might need repairs and maintenance, for example. 

You must also remember the ongoing expenses to keep your investment property in good shape. A property manager can help you stay on top of things so nothing slips between the cracks. Even so, you need to ensure you have sufficient funds to deal with expenses that pop up.

5. Income Potential

Another thing to consider before buying an income property is the income potential. The investment must be worthwhile, so the income potential is vital. Consider the 1% Rule. According to this principle, the monthly income you earn from rent should be equal to or more than 1% of the rental property’s total worth. So, if your rental property is valued at $300,000, you need at least $3,000 monthly in rental income.

These are some things to mull over before buying an investment property. Going about things the right way can make for a financially rewarding endeavor. What you don’t want to do is move too fast, make mistakes, and turn the dream of owning a rental property into a nightmare of regret.