When you’re looking to diversify your investment portfolio, and real estate is the answer…consider the following when evaluating your first rental.
Neighborhood – the quality of the neighborhood in which you buy will influence both the types of tenants you attract and how often you face vacancies.
Property Taxes – property taxes are not standard across the board and, as an investor planning to make money from rent, you want to be aware of how much you will be losing to taxes.
Schools – your tenants may have children, so they will need a place near a decent school. When you have found a good property near a school, you will want to check the quality of the school as this can affect the value of your investment.
Crime – go to the local police station or the public library for accurate crime statistics for various neighborhoods. Items to look for are vandalism rates, serious crimes, petty crimes and recent activity.
Job Market – locations with growing employment opportunities tend to attract more people – meaning more tenants. To find out how a particular area rates, go to the U.S. Bureau of Labor Statistics or to your local library.
Amenities – check the potential neighborhood for current or projected parks, malls, gyms, movie theaters, public transportation hubs and all the other perks that attract renters.
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 sign of a good growth area. However, watch out for new developments that could hurt the price of surrounding properties, for example, causing 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.
Number of Listings and Vacancies – if there is an unusually high number 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.
Rents – you need to know what the average rent is in the area. If charging the average rent is not going to be enough to cover your mortgage payment, taxes and other expenses, then you should keep looking.
Insurance – 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.