Top 10 Things to Consider Before Investing in Rental Property

Are you thinking about investing in rental property? It may seem easy, however, there are a number of points to consider before you dive into a long-term commitment, to ensure security, success, and a strong return on investment.

Here are top 10 things to keep in mind when searching for the perfect rental property.

1. The neighborhood

The first thing to consider is the location of your investment. Buying a house in a high-end neighborhood will attract wealthier tenants, while investing in a property in a university town is likely to result in leasing to students during term-time.

Before you start looking, make a list of areas, and spend some time in each one to get a feel for the neighborhood.

2. Amenities

As important as the neighborhood itself, consider what is available for your tenants. Are there schools for their children? How far away is the nearest hospital or supermarket?

Choosing a property in close proximity to current or planned shopping centers, transport connections, and sports facilities will be a huge draw for potential renters.

3. Crime

Just like the location, the local crime rate will influence the types of tenants interested in renting your property. Ensure that you research the area carefully to determine whether crime will become a problem.

Is there a police station in close proximity? Is vandalism noticeable in the vicinity? Has the crime rate risen in recent years? These are all questions to ask yourself before purchasing.

4. Jobs

To make your property as attractive as possible, consider purchasing in an area near to large corporations, or a commutable distance away. While no one wants to live right on the doorstep of a building site for a major corporation, new businesses mean more employees in the area.

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If you would rather invest in a quieter neighborhood, consider commuter towns, likely to attract workers looking for a more rural location.

5. Rental costs

Research how much other properties in the area are charging per month. Ensure that you look at a number of houses and apartments, and examine how the rental prices have increased or dropped over the past five to 10 years.

If the average rent in the area is too low to cover your investment, consider looking elsewhere to ensure you don’t lose out.

6. Property tax

Make sure you have educated yourself on property tax, and how this can change overnight. Remember, just because the property tax is high, this does not mean that you should necessarily walk away.

Compare the property tax with how much you can charge for rent in your chosen location, to calculate how much you will lose to taxes each month.

7. Insurance

Do not forget, renters will not necessarily treat your property as you would treat it yourself. Particularly if you are renting to students or younger age groups, keep in mind that damages do not take long to occur and these can be costly. Furthermore, if the area is prone to flooding, insurance is essential to protect your investment.

8. Target tenants

Before you purchase a rental property, make sure you know who your ideal tenants would be. Are you looking for a student let, a family home, or a classic apartment for young professionals?

Are you going to allow your tenants to decorate the property themselves, or will you provide furniture? All of these decisions influence how long a tenant will stay, and ultimately how successful your rental property will be.

9. Management

Don’t be overambitious. Be realistic. Do you have the time and resources to manage your rental property yourself, or should you explore the possibility of employing a property manager to both find tenants and take care of your property? This will free up your time, but cut into your return on investment.

10. Property type

When researching the area, consider which property type has the highest return on investment. If you purchase a bigger house, you are more likely to secure long-term tenants, looking to lease for their family.

Studios or one bedroom properties are more popular among singles or young professionals, searching for a flexible, perhaps shorter-term contract.