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investing in a rental property

Are you considering investing in a rental property?

Let’s take a look at some of the top things you should consider when searching for the right rental property.

Neighborhoods: The quality of the neighborhood where are going to purchase your property can tell you the type of tenants you will have and how often you may face vacancies. If you purchase a property near a school, you will have a pool of potential tenants that will be made up of mainly students. Every summer you may have vacancies when students either graduate or go home.

Property Taxes: Property taxes are not standard across the board. As an investor planning to make money from rent, you want to be aware of how much you will be losing to taxes. High property taxes may not be a bad thing, if the neighborhood is an excellent place for long-term tenants. But high taxes and great neighborhoods do not necessarily go hand in hand. The town’s assessment office will have all the tax information on file or you can talk to homeowners within the community. If you can afford the area now, but major improvements are in store and property taxes are expected to increase, then what could be affordable now may mean bankruptcy later.

Amenities: Check the potential neighborhood for current or projected parks, malls, gyms, movie theaters, public transport hubs and all the other perks that attract renters. Cities, and sometimes even particular areas of a city, have loads of promotional literature that will give you an idea of where the best blend of public amenities and private property can be found.

Building Permits and Future Development: The municipal planning department will have information on all the new development that is coming or has been zoned into the area. If there are many new condos, business parks or malls going up in your area, it is probably a good growth area. However, watch out for new developments that could hurt the price of surrounding properties. For example, is this new development going to cause the loss of an activity-friendly green space? The additional condos and/or new housing could also provide competition for your renters, so be aware of that possibility.

Amount of Listings and Vacancies: If there is an unusually high amount of listings for one particular neighborhood, this can either signal a seasonal cycle or a neighborhood that has “gone bad.” Make sure you figure out which it is before you buy in. If it is a seasonal cycle you should make sure you can cover for any seasonal fluctuations in vacancies. Similar to listings, the vacancy rates will give you an idea of how successful you will be at attracting tenants. High vacancy rates force landlords to lower rents in order to snap up tenants – low vacancy rates allow landlords to raise rental rates.

Rents: Rent will be the bread and butter for your rental property, so you need to know what the average rent in the area is. If charging the average rent is not going to be enough to cover your mortgage payment, taxes and other expenses, then you have to keep looking.

Natural Disasters: Insurance is another expense that you will have to subtract from your returns, so it is good to know just how much you will need to carry. If an area is prone to flooding, the extra insurance can add up and eat away at your rental income.

Some other things to consider when investing in a rental property would be schools, crime rates and job availability. Just make sure you do all of your research before you make a decision. You may also want to hire an experienced real estate agent to help.