Advice to Investors from a Single-Family Property Manager
A single family property manager often advises real estate investors to consider the great potential found in well-screened single family properties. Single family homes often provide a great option. They tend to be in demand and they attract long-term residents. From a financial perspective, they either retain their value or appreciate over time. When looking for a property to invest in, you should investigate several factors before making an offer. A low asking price doesn’t always reflect a good deal; market value is just one of the features to consider when choosing an investment property.
PRICE
Your first step in finding a great single family property to invest in is to make a list of those currently listed below market value. Then determine why they are bargain-priced. The price tag might only indicate that the home is in need of minor repairs or cosmetic updates; you just need to be sure that the house does not have extensive damage requiring major repairs. Buying a fixer-upper can be a good idea, but anything you spend making the property habitable must be factored into your rental margin. Look for properties that are in good shape but are underpriced for other reasons; perhaps the sellers are in a hurry or have set their price based on personal factors that are not reflected quantitatively.
LOCATION
Location, location, location. It may be a cliché, but the location of the home may determine the profitability of your investment. Check out the neighborhood carefully, including the number of other rentals nearby and how much similar homes are being rented for. In your cost analysis, factor in crime rates, school systems, employment opportunities, proximity to public transportation and shopping, as well as features that may be unique to the area. Watch out for locations where there are a lot of vacant rentals or very low rents; both indicate potential trouble. All this is to say that you should look for a low-market price in an area that commands high rent rates.
RATE OF RETURN
Beyond the price of the home and its location, you must also crunch the numbers. A good investment offers a solid rate of return. In real estate, this capitalization rate can vary by area, and usually ranges between 4% and 10%. To find the capitalization rate for a potential investment property, calculate your net operating income (rent less expenses) and divide it by the sale price of the home. Be sure to include things like property taxes, which you can get from the county assessor’s office, applicable Association fees and any extra insurance such as for flood protection.
As a rule of thumb, keep total expenses to about 50% of the gross rents – this is known as the 50% rule. If any property you are considering doesn’t offer a good return, give it up and shop for another property. Take it from experienced single family property managers, that the residential market provides a large supply of homes to choose from.
MANAGEMENT
If you have not partnered with a professional single family property manager to help you with these crucial steps, consider doing so at this point. A professional listens, understands your goals, can help you keep your costs low and your investment profitable. His trustworthiness can increase your confidence in investing wisely. The folks at Real Property Management Metro Boston have the expertise you need. With competitive pricing and guarantees, you can be confident that your real estate investment is in the right hands. Get to know us by clicking on our offer of a free assessment of your rental property.
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