If you are seeing all the great deals out there and want to get a great rental property before all the deals disapear, my advice is not so fast. The waters here are great for surfing but they are infested with SHARKS.
For instance it is not entirely unheard of to purchase a rental in Lorain County for $10,000 put $10,000 into it and be able to rent out the property for $700 per month. At first glance that means you will get your original investment back in 2.3 years. Not bad. We have seen better deals than that come across our desk and lesser deals (See our web form below join our investor list. ). However if you don’t know the area you might be in for some 30% plus vacancy that could significantly effect your profits. Or maybe you thought you could get 700 but after 6 months of trying you have to lower it to $450. Still not a terrible deal compared to many investments today but maybe not as good as you could have gotten.
1. Location, location, location.
Carefully consider exactly where you are buying. There are many out of town investors that look only at the numbers. However if you don’t know location you need to make sure you have someone who does helping you understand the benefits and drawbacks of a specific location. Some areas look great but simply are not desirable for a whole lot of reasons. Other areas don’t look good but actually are in demand.
One strategy for evaluating location is to consider the target market you think a home will be for. Is this home likely going to attract a you family based on the lay out and size? If this is the case then proximity to good local schools will be something for you to evaluate.
Other factors for your consideration are:
Also consider location in the cost of landlord insurance. Your zip code effects your insurance rate big time.
2. Get on the knowledge train…
Make sure you understand the processes and legal obligations involved in renting out a property. One small slip up in how you advertise can mean a fair housing violation for you. Fair housing violations are very very expensive. There are also numerous requirements for paperwork to cover your tail and make sure you you have expectations properly set with your tenant. Do you know what lead based paint disclosure is? Ohio law requires it in properties built before 1978.
Make sure you understand the true costs when purchasing a rental property. They can bite your arm off. One benefit of the current market is that the low prices of homes are making cash purchases a reality for many potential investors so the risk of jumping in is much lower. Even if costs eat you alive your return on investment will likely be better than than the stock market or a CD. Still it is very possible to lose money with an investment property and it is important that you do your research (hint- an investment property specialist can really help here- see below).
The following should be factored in:
Rental property insurance is an absolute must. If you are renting your property out then you certainly will not qualify for a standard home insurance policy. Vacant homes that are not rented are even a bigger insurance hassle and you want to make sure that you are on board with a good insurance agent. Email us for a referral (firstname.lastname@example.org).
Also you want to make sure that you are properly insured to protect your assets. Although there are many other asset protection strategies in the form of separate entities like trusts, LLC’s etc (contact us if you want an attorney referral for this at email@example.com). Our company has a $1,000,000 E & O policy and our Investment Property Management Company has $1,000,000 in insurance for repairs made to our clients properties as well. For a Landlord an inexpensive umbrella policy would help protect against the freak lawsuit that could otherwise wipe away all the assets you have worked so hard to acquire.
4. Maintenance and upkeep
You’ll need to inspect your property at specific intervals and make sure that the tenant is not destroying property faster than what you might expect from normal wear and tear. It is vital to make sure that a property is inspected reasonably soon after a tenant first moves in just to make sure they aren’t quickly destroying it.
Failing to maintain a property can result in injury to the occupants and then a lawsuit. Also an unmaintained property is difficult to rent out to good paying renters. It helps to have a reliable contractor on hand who can quickly do any work necessary (hint, hint… we can help with that- this is one benefit of professional maintenance. and you won’t have 1AM calls for help). For instance plumbing repairs and furnace repairs must be done immediately in order to avoid a certain and expensive vacancy.
5. Finding GREAT tenants
Promoting your property is an art in it self. Different areas need different marketing techniques to find the best tenant for the area. Also some areas will simply attract a different kind of tenant than other areas. It is important to understand various areas and the best marketing for each area as well as how to screen tenants(see our tenant marketing strategies article here).
With more than 45 years of investment property management experience our expert team can relieve you of the burden of managing your rental property while saving you some serious money! Call us today at (440) 220-7300 to see how we can help you!