Welcome to our second installment of What Makes a Good Rental Property. This is a continuation of a blog that was originally posted in early May, click on the link in the previous sentence to read the first blog.
Future Development Possibilities
You can check with a community’s municipal planning department to see what new developments are scheduled for an area. A lot of developments is a good indicator of a growing, healthy neighborhood. Keep an eye out for the type of developments that could hurt rental prices and vacancies in an area like high-density housing or apartment units.
Look at the Number of Listings & Vacancies
Vacancy rates in an area will affect what you can charge for a rental. If there are low vacancy rates, you will be able to enjoy higher rates, if there is a high vacancy rate in the area, you will probably have to lower your rental rates to attract tenants.
If you do notice high vacancy rates in an area, it is wise to find out if they are just seasonal like in the case of having a college or university nearby or if people are vacating the area because it is a declining neighborhood. If it is seasonal, it can still be a good investment, you will, however, need to make sure you have the cash flow to carry you through the vacancies.
What is the Average Rent?
Knowing what the average rental rates are is one of the most important things you can do. You need to ensure that the rent will at least cover the mortgage payment, the taxes, and other expenses including a property manager if you decide to go that route. If you can not have positive cash flow or at least break even, then move on!
Confirm that you will be able to continue to at least break even in the future. Research the are so you can predict if the values of the area will increase thus increasing your property taxes. What you can not afford is for the rates to increase to the point that you are in a negative position (the house is costing you more than you make) each month.
Is the Home in an Area Prone to Natural Disasters?
Some areas are prone to natural disasters that require additional insurance. Depending on what the natural disaster is, the insurance could be more than you can afford to pay and still cover everything with the income from the property. Here in Alaska, it is important to research flooding and earthquakes.
Are Utilities Affordable?
Depending on the market, it can be a smart idea to include utilities in the monthly rental rate. If you are planning on this, you need to make sure there are not going to be any surprises with the utilities. Sometimes the local utility company can disclose generalities about a property, but for specifics, you will have to talk to the seller.
While doing your homework is not guaranteed to eliminate all of the challenges of owning rental properties, it can make them more profitable for you.
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