Key Elements of a Profitable Investment Property
If you’re looking to purchase a residential rental property, keep in mind that the real estate is a tough market, bristling with pitfalls that can trap unaware first-time investors. You need to know what sells and what doesn’t – you can always go through a real estate agent to help you complete the purchase but at one point, you should start looking for properties of your own. In some cases, an agent can even put unnecessary pressure on you to purchase although the property doesn't suit you completely. Here's what you should look into residential rental real estate.
Neighbourhood
The neighbourhood of your rental property usually determines the types of tenants you'll be dealing with, as well as the vacancy rate. If you invest near a university campus, students are most likely to dominate your choice of potential tenants, however, leaving the property vacant during the summer. Do your research beforehand, as some municipalities discourage rental conversions by introducing excessively high permit fees that stop any renovation attempts in their tracks.
Property tax
Although these public fees tend to vary from area to area, you should keep a tab of how much you're going to lose to property taxes. High property taxes don't have to be a bad thing, especially if you've invested in a good neighbourhood that is popular with long-term tenants, still, even unpromising places sometimes have ridiculously high taxes. Although the municipality assessment office keeps a file on all the tax information, you should also talk to homeowners in the area, as well as find whether the property tax is likely to increase in the future.
Schools and amenities
If you’re interested in family-sized rental homes, take into account the quality of local schools. Even though the monthly cash-flow is your main concern, when it comes to residential properties, you need to include the long-term value as well, and especially the overall value when you eventually decide to sell it. The lack of good local schools and other amenities might decrease the value of your investment. These include parks, restaurants, movie theatres, gyms, shopping destinations within walkable distance, as well as public transportation routes.
Future development
Ask around the municipal planning department to see if there’s a new development coming or has been zoned into the area. If there’s a lot of development going on, it’s probably a promising area. One of such promising areas these days is Lombok Island, Indonesia – a region is known for stunning and abundant undeveloped landscapes. Hong Kong-based company Invest Islands is a perfect example of a real estate tiger that can help you navigate the complex real-estate ownership model for non-citizens, allowing you to invest in a country that is undergoing rapid growth and development.
Employment market
Locations with promising job opportunities attract more tenants. You can easily find the job availability rates for an area in the local labour statistics agency or library. If there are announcements of a major employer moving into the area, rest assured that workers in search of apartments will flock to the town. Depending on thy type of company that is moving in, this can mean that house prices will go either up or down. The safe thinking model is that if you’d like to have that company around, your tenants will as well.
Average local rents
Since you’re expecting substantial income out of your rents, you need to find out what the average rent in the neighbourhood is. The property that you invest in should yield enough rent to cover your mortgage payments, taxes and other expenses, so research the area to see where will it be in the next five years. You may afford the neighbourhood now, but if taxes are expected to go up, what seems like an affordable property now might mean bankruptcy in the future.
Listings and vacancies
If an area has an unusually high number of listings, it can either indicate a seasonal cycle of occupancy or, in a worse, scenario, a neighbourhood in decline. While both scenarios are unfavourable, you need to know what your’ dealing with, as high vacancy rates drive rents down, while low vacancy rates allow landlords to raise rates without fear of losing tenants.
When hunting for lucrative residential rentals, you need to include everything from the neighbourhood vacancy rates to taxes and future development plans. Your choice will ultimately be determined by whether you intend to actively manage the property or hire someone to do it for you.
