Investing in rental property can be a highly profitable venture but this sort of investment also comes with many potential risks that can severely cut into your revenue. When you’re looking to acquire rental property, here are ten things you should take into consideration:
The neighbourhood in which you’re buying property will have an effect on the type of tenants you can expect and frequency of vacancies. For instance, if you buy property near a college, most of your tenants are likely to be students and you’ll probably face a high vacancy rate when school isn’t in session.
2. Property taxes:
You will always lose part of the returns you make to property taxes and it’s important to know just how much you’ll be losing. Property taxes can vary due to many different reasons including the zone you’re buying in. High property taxes aren’t such a bad thing if you’re in an area where you can get many long-term tenants.
Having a good school nearby is a major priority for many parents. You’ll want to assess the quality of nearby schools because this will also have an effect on property value. Even if you have tenants, low property values will be an issue when you decide to sell.
A neighbourhood with high levels of crime can be tough to handle. Tenants willing to live in such areas may not be willing to pay above a certain amount. Check the police database to see the frequency of crime, whether the crime rate is falling and how often police patrol the neighbourhood.
5. Job Market:
If there is a major source of employment nearby, workers will want to move to the area and this is good because it will reduce vacancy on your property. However, the presence of certain companies may also bring down property prices so look into that first.
Tenants prefer to live in areas with easy access to amenities such as gyms, shopping malls, parks etc.
7. Permits and Future development:
You should know about all other properties that are coming up or going to come up in the neighbourhood in the near future. When properties such as condos and malls are being built, there is likely to be an influx of tenants. Some other types of property can have the opposite effect and may even bring down your property value.
8. No. of vacancies and listings:
If there is a high number of vacancies or homes for sale in an area, this could be a warning that the neighbourhood is on a downward trend. This could also mean that the rental market is seasonal. In this case, you should check whether the gains during the rest of the year will cover the period of vacancy.
If charging the average rent in a given area doesn’t cover the mortgage, taxes and other expenses, the property isn’t worth it.
Places with a high risk of natural disasters and other problems could mean high insurance premiums and this can reduce your profits significantly.