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Before you make the leap to buy a house, you may want to consider a few things first. A house can become a major source of income for you in the future if you play your cards right. Taking the time to make sure the house you are buying meets the criteria of a good rental property sets you up for success ahead of time. These are the top five things I look for when I’m ready to buy a house to rent out.
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The Top Things I Look For When It’s Time to Buy a House to Rent
1. Location Saturation
The first thing to look for when you buy a house with the intention of renting it someday is whether there is a lot of competition from other homes in the area.
You will want to make sure there are only a few homes available for sale or rent. If there are too many, this could be an indication that the location is saturated and this would make it extremely difficult to rent out your house.
Helpful real estate sites such as Zillow or Redfin have filters which make it easy to determine if there are a number of homes for sale or rent. If there are just a few homes for rent in your area, you will be able to command a better price, and you will rent out the house faster!
2. Appealing Amenities
There are amenities that always drive the price of real estate higher. Those include being near water (such as the beach, lake or river), being in a college town, and being near excellent school districts.
According to Zillow Research, waterfront homes are worth more than double the value of homes overall. If you think about it, there is limited land near waterfront property. Any time there is a limitation in the market, the price will go up! This home you are buying is also an investment, so if your property has a better chance of appreciating because of where you buy, then take this into consideration. It could mean hundreds of thousands of dollars difference after twenty or thirty years.
Houses in college towns tend to appreciate significantly because schools tend to support the local economy. Also, there tends to be a large population of renters which makes finding a tenant easy. Because there is a high demand in college towns, this tends to keep the rent rate high as well.
School districts can make or break an area. I’ve seen parents rent out the house they own and move into a rental in an area with a better school district just to give their kids a better opportunity for advancement. Look for a house in a popular school district and the house will always stay rented!
3. Near Jobs
When looking to buy a house to rent it out, it’s very important that the demographics of the area will make owning a rental a favorable investment.
Most importantly, make sure the job market is flourishing nearby. If it is easy to get a job, then your renters stand a better chance of staying employed (which means you keep getting paid rent!)
4. Specifics of an Ideal Rental House
Once you have determined the area will support a rental investment property, then you can start zeroing in on the property itself.
Look for a starter home, ideally three bedroom or four bedroom and two bath. Renters will be looking for a fenced yard if they have pets. They will also love to have a garage and family room or bonus room.
To ensure your renters have a nice living experience, look for a house in a well kept neighborhood with friendly neighbors.
For ease of keeping the property clean and turning the property over, look for a house with hard floors and basic appliances.
Related Articles:
- How to Buy a Home to Rent it Out
- 8 Reason Why Your First House Should be an Investment Property
- Deciding What Kind of Refi to do When Buying a House to Rent It Out
5. Price
The final thing to look for when you are ready to buy a house to rent out is the price of the house. It is important to run numbers when you are ready to make this big of an investment.
Make sure that the rental prices in the area are high enough to make renting your property a good idea. You can use this calculator to do some quick number crunching to see if this will make sense for your particular house.
Remember to consider costs such as mortgage, property taxes, insurance, HOA, repairs, property management, and any utilities you will cover for the tenant. Also take into account that there might be months when your house is vacant and you need to cover all expenses!
Tips to Buy a House to Rent Out
Doing your research ahead of time can save you thousands of dollars in mistakes down the road. Remember to make sure the area needs rentals, that the house is in a highly sought after area with sufficient work available, and that the house provides all the amenities that a renter will need.If you follow these simple steps when buying a house to rent out, then you will stand a much better chance of success.
How do you know if a house would make a good rental investment property?
When I’m making a decision to buy a house to rent out, I will usually do two very important final steps.
I will take the time to go visit the house and area in person and see what my gut tells me. If anything feels like a ‘NO’ about the decision, then I walk away. I did not listen to my gut early on in my real estate investing days, and this ended up causing problems later down the road.
When you see a house in person, you get a sense of the neighborhood and how it is doing. Are the neighbors taking care of their yards? Does the house feel inviting? Is the backyard relaxing?
The second thing I do is sit down with a property manager in the area and ask them what people desire in a rental. The property manager will be able to tell you what things people ask for when they tour rental properties. We discovered in one area that people wanted a bonus room for their kids to play and do school work. This little addition made our property an easy fit for a new family looking to rent.
Are you ready to buy a house to turn it into a rental property investment? What areas might be a good fit for your potential rental property? Comment or leave your questions below!
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