As investment properties go, single-family rental homes are among some of the excellent selections at hand. With record numbers of renters on the market, single-family rentals are in high demand. They additionally have extra perks, such as long-term residents and the ability to appreciate over time. The most arduous aspect of owning and operating rental properties may just be going in search of a great bargain in an expanding market. So, before you purchase that rental property in Madison that you’ve had your eye on, regardless of how excellent the arrangement and deal sounds, it’s important to ask yourself six key questions.
1. Why is the home listed at the current price?
A good deal on an investment property often starts by finding properties listed below market value. Nonetheless, the cause of why the property is listed at a particular price may be a lot more crucial than whether it’s a good bargain or not. Inspect the property well to guarantee that it does not have hidden damage or needs major repairs. On the off chance that you are plotting to invest a large sum of money into fixing it up, you’ll want to avoid a property like this. Anything spent making the property habitable must be factored into your rental margin, so why the property is underpriced matters.
2. What is the state of the local real estate market?
Regardless of where you are contemplating to purchase a rental property, do your due diligence of the neighborhood and local market first. You have to be aware of how many rentals are available, what the standard rental rate is for properties like the one you plan to own, and whether those rates have gone up or down just recently. Crime rates, nearby amenities, access to public transportation, the local job market, and more are also important aspects of a rental’s location. Good locations tend to present a larger number of single-family rental homes that have considerably low market values but comparatively high rents.
3. What is your expected rate of return?
Apart from a rental’s location and price, you should calculate a potential rental property’s rate of return before making an offer. The rate of return or capitalization rate changes from place to place, nonetheless usually falls between 4% and 10%.
To know the capitalization rate for a potential investment property, calculate your net operating income (rent minus expenses) and divide it by the home’s sale price. Ensure to include things such as property taxes (which you can obtain from the county assessor’s office), Association fees, and any extra insurance obligated if the home is in a location prone to natural disasters.
On average, it’s right to keep total expenses to about 50% of the gross rents – this is known as the 50% rule. On the off chance that any property you are looking at doesn’t impart a good return, forget it and proceed. There are countless other properties around.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, once in a while, going in search for bargain properties can be toilsome to do. This is where innovation and vision can be of service to real estate investors when discovering ideal rental homes that others may have not considered. You can make great deals by adding value to a property in lots of ways.
As an illustration, upgrading the interior with modern flooring or new appliances or making a second bathroom to a house that only has one. Various homes have dens, sunrooms, carports, or other areas that can immediately and affordably be converted to increase the property’s total square footage. By adding value to a rental property, consequently, you can generate the type of positive cash flow you desire.
5. Does the property fit into my niche or area of expertise?
Among the greatest miscalculation investors make is procuring property in Madison precisely because it looks like a bargain or they’ve already decided on a certain deadline for their next purchase. Nonetheless, challenges and problems can promptly occur in situations when a bargain property is outside of your area of proficiency or you are pushed to acquire it in spite of the fact that there are clear warning signs.
It’s a brilliant thought to develop a deep understanding of one niche or a segment of the market so that when you notice what seems like a great deal on investment property, you can definitely know whether or not it’s too good to be true. In the same manner, retaining the tolerance to wait up long enough for when the right deal comes up is a vital element of investing in rental properties.
Just because everyone else appears to be buying now does not mean that you should also. Ensuring that every prospective property fits your targets and area of expertise will help you in avoiding some of the most common investing mistakes.
6. Who will manage the property?
A thriving and profitable rental property is also one that appreciates over time. Though to guarantee that a property maintains its ability to grow in value, you will need someone who is dependable and trained to attend to the needs of your property. If you have the capability and time to administer your property yourself, you’ll have to make sure that you’ll be easily accessible for countless midnight emergencies or repairs.
On the off chance, you are not preparing to do it yourself, or if your rental properties are quite far away from where you stay, you ought to have a property management company that is aware of your investment goals and targets. Professional property management companies like Real Property Management have grown to become a reliable, nationwide resource for rental property owners like you.
Before you purchase that rental property in Madison you’ve had your eye on, you should be sure you have the best and most recent information available. Real Property Management Greater Madison Metro presents a free rental property assessment to its clients that can effortlessly aid you in your decision-making process. Put to use this worthy resource by contacting us online or calling 608-310-1290 today.
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