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When you’re considering investing in Lehigh Valley real estate, there is so much to know. From rental property evaluations, budgeting, and estimating to officially buying property, trying to navigate the journey on your own could be daunting. What you need is a checklist and guide to make sure you think of everything.
What makes a rental property valuable? How can you be sure you’re not falling into a money pit? These questions and so many others are probably on your mind. Keep reading, though. We’ve outlined an ultimate guide to evaluating and purchasing rental property. Understanding each of these points is a great first step toward real estate investment success.
Always Get the Inspection
Relying on your gut won’t be helpful here. Properties will all present their own advantages and disadvantages, whether it’s your first time buying rentals or you’re boosting your portfolio with your fifth property. You might be more interested in turnkey properties for your first rental experience. For the seasoned veterans, the goal might be to find something in a new city or region to expand your rental property footprint. Regardless of what scenario describes you the best, always get the professional opinion about a property to evaluate its condition. Don’t be pressured by a rushed sale, and don’t make decisions based on your walkthrough of a property alone. Bring in the professional to evaluate everything from the roof to the foundation, so you can be informed about what expenses to expect and what repairs are needed for a safe and move-in-ready property.
Location Matters Every Time
No matter what you’re looking to buy or what region you plan to buy a property in, location will always matter. Create a checklist for yourself outlining the basics, including drive time to nearby metropolitan areas and availability of community amenities. Is the neighborhood in question growing, or are there more vacancies and “for sale” signs dotting nearby blocks of properties? How’s the economic development in the area, and what are the trending rates for unemployment? Don’t be afraid to talk with local business owners or other professionals in the area who might be able to help provide insights about the community’s growth and prosperity.
Understanding the Expenses
Remember, when you buy rental property, even the most turnkey of properties, there will be a full roster of new expenses you’ll be responsible for managing. Every rental property will have a unique set of costs, immediate and long-term. But for purposes of this ultimate guide, here are a few of the more common expenses you can expect.
Insurance premiums
Homeowners’ association fees
Monthly utilities
Advertising and marketing
Cleaning, maintenance, and repairs
Depreciation
Professional fees (legal and management fees)
Mortgage interest and taxes
Knowing Your Borrowing Power and Budget
Rental property that is not intended to be your primary residence won’t be eligible for government-backed mortgages, like FHA loans, VA loans, or USDA loans. However, there are various lending solutions to tap into when financing the purchase of your first or tenth rental property. These include:
Conventional Loans
Home Equity Loans
Jumbo Loans
Home Equity Lines of Credit
Cash-Out Refinance
Interest rates might vary or be higher for rental property mortgages, too. So, talk with your lending professional to explore your options and borrowing power. If you have long-term plans to build a portfolio of properties, you’ll want to be sure you’re working with a lending partner who understands your long-term objectives, as well. Shop around if you need to in order to find the best-find professional for lending advice.
Types of Rental Properties to Consider
Educate yourself on the various types of rental properties to buy. The real estate market is intense with activity right now, meaning you’ll likely find just the type of property you have in mind. If it’s your first purchase, a single-family dwelling can be a great first property. If you’re growing a portfolio of properties, it might be beneficial to diversity by purchasing property types that differ from your other investments.
Single-family homes
Multi-family unit properties
Condos
Vacation rentals
HOA properties
Determining Your NOI
You’re likely already familiar with ROI. But when investing in rental properties, you’ll also find value in being able to determine NOI or Net Operating Income. This calculation will help you anticipate potential earnings once you’ve purchased the property. Take the annual income estimate minus the yearly expenses, except the PITI payments or capital expenditures. Knowing your NOI will also help you better manage any group of properties and allow you to determine whether an investment will potentially provide enough income to cover the mortgage payments.
Having Contingency Plans for Vacancies
In preparing for rental property investment success, you’ll need to look beyond the numbers and prepare for contingencies. Contending with vacancies, dealing with evictions, and managing property damage are just par for the rental property ownership course. Yes, you’ll plan for management best practices to help you reduce your risks. But you’ll also want to know what you plan to do should your property sit vacant for longer than anticipated. What resources do you have available to help handle the legal aspects of evictions? Can you finance repairs should your property experience significant damage from residents? Be ready ahead of time by connecting with an attorney partner, knowing your insurance coverages inside and out, and saving up for those “rainy day” moments that will arise.
Expect Maintenance and Repairs
Repairs and rental property maintenance don’t just happen once in a while. You should also develop ongoing strategies for seasonal and annual visits from trusted contractors to stay ahead of major home component failures. There will be normal weathering, as well as aging and wear and tear to consider. Roofs will need replacing. Trees will require trimming. And appliances will eventually fail. Create a reliable network of vendors now, and negotiate your best rates, to stay ahead of surprise repairs or fixes that could cost you.
HVAC contractors for AC and furnace servicing twice a year
Plumbing contractors for drain concerns, clogged toilets, and water heater maintenance
Home inspectors for annual or seasonal inspections to identify concerns
Landscaping professionals who can make quick work of low-hanging branches and yard work
General contractors who can replace ceiling fans, fix loose railings, and handle other incidentals
Pest control specialists who can help with seasonal maintenance treatments for insects or rodents
Electricians who can help with electrical work relating to outlets, fuses, panels, and wiring projects
Working with a Rental Property Management Partner
When you’re ready to start evaluating and purchasing rental property, know you shouldn’t go it alone. Because there is so much to consider, even before you buy, it can be incredibly advantageous to work with a professional property management firm, like Axel Property Management. Property managers don’t just help you collect rent from residents or screen potential candidates. At Axel Property Management, our teams of professionals can be invaluable in providing sound investment advice and strategizing the best plans for rental property success. Let us help you with figuring out your best first steps now, and then we’ll help you with all those other management tasks, too.
Contact Axel Property Management before you start your rental property investment journey. Use this guide as a resource, and then let us be your ultimate guide!
