Finding the Right Rental Property

From the first decision to invest in real estate to actually buying your first rental property, there is a lot of work to be done. This task may be daunting for the first-time investor. Owning property is a tough business and the field is peppered with land mines that can obliterate your returns.

Following are some ways to minimise risk and assist you in finding the right property for you;

The quality of the neighbourhood in which you buy will influence both the types of tenant you attract and how often you face vacancies. For example, if you buy in a neighbourhood near a university, the chances are that your pool of potential tenants will be mainly made up of students and that you will face vacancies on a fairly regular basis (during summer, when students tend to return back home). 

Property Taxes
Property taxes are not standard across the board and, as an investor planning to make money from rent, you want to be aware of how much tax you will be paying.  High property taxes may not always be a bad thing if the neighbourhood is an excellent place for long-term tenants, but the two do not necessarily go hand in hand.

Your tenants may have or be planning to have children, so they will need a place near a decent school. When you have found a good property near a school, you will want to check the quality of the school as this can affect the value of your investment. 

No one wants to live next door to a hot spot for criminal activity.  You might want to ask the local police about vandalism rates, serious crimes and petty crimes and in the neighbourhood.

Locations with growing employment opportunities tend to attract more people – meaning more tenants. If you notice an announcement for a new major company moving to the area, you can rest assured that workers will flock to the area.  

Check the potential neighbourhood for current or projected parks, malls, gyms, movie theatres, public transport hubs and all the other perks that attract renters. Cities, and sometimes even particular areas of a city, have loads of promotional literature that will give you an idea of where the best blend of public amenities and private property can be found.  

Building Permits and Future Development
The municipal planning department will have information on all the new development that is coming or has been zoned into the area. If there are many new condos, business parks or malls going up in your area, it is probably a good growth area. However, the additional condos and/or new housing could also provide competition for your renters, so be aware of that possibility. 

Amount of Listings and Vacancies 
If there is an unusually high amount of listings for one particular neighbourhood, this can either signal a seasonal cycle or a neighbourhood that has “gone bad”. Make sure you figure out which it is before you buy in. You should also determine whether you can cover for any seasonal fluctuations in vacancies.

Similar to listings, the vacancy rates will give you an idea of how successful you will be at attracting tenants. High vacancy rates force landlords to lower rents in order to snap up tenants – low vacancy rates allow landlords to raise rental rates.

Rent will be the bread and butter for your rental property, so you need to know what the average rent in the area is. If charging the average rent is not going to be enough to cover your mortgage payment, taxes and other expenses, then you have to keep looking. 

Natural Disasters
Insurance is another expense that you will have to subtract from your returns, so it is good to know just how much you will need to carry. If an area is prone to earthquakes or flooding, the extra insurance can add up and eat away at your rental income.

Every state has good cities, every city has good neighbourhoods and every neighbourhood has good properties, but it takes a lot of footwork and research to line up all three. When you do find your ideal rental property, keep your expectations realistic and make sure that your own finances are in a healthy enough state that you can wait for the property to start producing cash flow rather than needing it desperately. Real estate investing doesn’t start with buying a rental property – it begins with creating the financial situation where you can buy a rental property.   

Contact True Property Management before you make that final decision or see what our clients have to say about us.  We will be happy to offer advice based on our knowledge of the market in your chosen neighbourhood.

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