Top 10 things you should consider when searching for an investment property.
From the first decision to invest in real estate to actually buying your first investment property, there is a lot of work to be done. This task may be daunting for the first-time investor. See below some top 10 things you should consider when shopping for an investment property.
The quality of the suburb in which you buy will influence both the types of tenants you attract and how often you face vacancies. For example, if you buy in a suburb near a university, the chances are that your pool of potential tenants will be mainly made up of students and that you will face vacancies on a fairly regular basis.
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. High property taxes may not always be a bad thing if the neighbourhood is an excellent place for long-term tenants, but the two do not necessarily go hand in hand.
Your tenants may have or be planning to 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. If the school has a poor reputation, prices will reflect your property's value poorly. Although you will be mostly concerned about the monthly cash flow, the overall value of your rental property comes in to play when you eventually sell it and retire someday.
No one wants to live next door to a hot spot for criminal activity. Go to the police or the public library for accurate crime statistics for various suburbs, rather than asking the homeowner who is hoping to sell the house to you. Items to look for are vandalism rates, serious crimes, petty crimes and recent activity (growth or slow down). You might also want to ask about the frequency of police presence in your neighbourhood.
Locations with growing employment opportunities tend to attract more people - meaning more tenants. If you notice an announcement for a new major company moving to the area, you can rest assured that workers will flock to the area. However, this may cause house prices to react (either negatively or positively) depending on the corporation moving in.
Check the potential neighbourhood for current or projected parks, shopping centres, gyms, movie theatres, 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:
If there are many new businesses, parks, apartments and shopping centres going up in your area, it is probably a good growth area. However, watch out for new developments that could hurt the price surrounding properties by, for example, causing the loss of an activity-friendly green space. The additional future development 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 suburb; this can either signal a seasonal cycle or a suburb that has "gone bad." Make sure you figure out which it is before you buy in.
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.
Rent will be the bread and butter for your investment property, so you need to know what the average rent in the area is. Be sure to research the area well enough to gauge where the area will be headed in the next five years.
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 or fires the extra insurance can add up and eat away at your rental income.