10 Things to Consider About an Income Property

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Are you interested in purchasing a residential rental property to boost your investment portfolio return? Investment properties can be exciting and rewarding to your finances if you make all the right choices. Income and other rewards aside, investing in real estate can be overwhelming for a first-time investor.

It is no secret that real estate is a tough business and the field is peppered with land mines that can obliterate your returns. This is why it is always important to do detailed research before diving in so you are on top of all the pros and cons of real estate.

Continue to read to find out the top 10 features to consider when shopping for the best income property, as well as additional information to make your search easier and more productive.

1. Neighborhood 

The neighborhood that you buy into will be the deciding factor of the type of tenants you attract and your vacancy rate. If you buy near a university, chances are that students will dominate your pool of potential tenants, as you can still struggle to fill vacancies every summer. Be aware that some towns will try to discourage rental conversions by imposing permit fees and piling on red tape.

2. Property Taxes 

Property taxes are one of your costs and can vary widely across your target area. High property taxes aren't always a terrible thing—for instance, in a highly sought-after neighborhood that attracts long-term tenants. There are unappealing locations that have high taxes. A municipality's assessment office will usually have all the tax information on file, or you can speak with homeowners in the community. Ensure that you find out if property tax increases are probable in the future.

3. Schools 

Consider the quality of the local schools if you are dealing with family-sized homes. You will more than likely be concerned with monthly cash flow, the overall value of your rental property comes into play when you eventually want to sell it. If there aren't any good schools of note nearby, it can affect the value of your investment.

4. Crime 

No one wishes to live next door to a hot spot for criminal activity. Online state and municipal sites, the local police, and the public library should have accurate crime statistics for neighborhoods. Check the rates for vandalism and either serious or petty crimes. Don't forget to note if criminal activity is either on the rise or declining. You may want to ask about the frequency of a police presence in your neighborhood.

5. Job Market 

Any locations with growing employment opportunities attract more tenants. To find out how specific area rates for job availability, check out the BLS (U.S. Bureau of Labor Statistics). If you see an announcement about a major company moving to the area, you can be sure that workers in search of a place to live will be interested in rentals. The type of business involved might cause housing prices to go up or down. You can assume if you don't mind having the company in your area, your renters probably won't.

6. Amenities 

Tour the neighborhood and check out the parks, restaurants, gyms, movie theaters, public transportation, and all the other perks that attract renters. City Hall may carry promotional literature that can give you an idea of where the best blend of public amenities and private property can be found.

7. Future Development 

The municipal planning department will provide information on developments or plans that have already been zoned for the area. If there is tons of construction going on in your area, it is probably a reliable sign of growth. Watch out for new developments that can hurt the price of surrounding properties. Additional new housing can compete with your property.

8. Number of Listings and Vacancies 

If a neighborhood has an unusually high number of listings, it might signal a seasonal cycle of neighborhood decline. It is important to find out which it is. In either case, high vacancy rates force landlords to lower rents to attract tenants. Low vacancy rates will allow landlords to raise rents.

9. Average Rents 

Rental income will be your bread and butter, so it is important to know the area's average rent. Make sure any property that is considered can provide enough rental income to cover your mortgage payment, taxes, and other expenses. Research the area well enough to gauge where it might be headed in the next five years. If you can afford the area now but taxes are expected to increase, an affordable property could mean bankruptcy later.

10. Natural Disasters

Insurance is an expense that is necessary to subtract from your return, so you need to know just how much it's going to cost you. If an area is prone to earthquake or flooding, insurance coverage costs could eat away at your rental income.

The Bottom Line 

Every state has good cities, every city has good neighborhoods, and every neighborhood has at least one good property. It takes a lot of footwork and research to perfectly line up all three. When your ideal rental property is found, keep your expectations realistic. Make sure that your finances are healthy enough to carry you until the property starts generating income. Allow Ronald Christopher & Associates to guide your next big home adventure find in Palm Desert, CA.