As investment properties go, there are plenty of opportunities you can choose from, but one of the top choices would surely be the single-family rental home. There is high demand for single-family rentals since this investment has been churning out record numbers of renters on the market. There are also additional benefits, including long-term residents and the ability to appreciate over time. The most daunting part when it comes to rental property ownership might just well be finding that great bargain in an expanding market. But don’t jump into purchasing that rental property just yet even though you think the deal is really great for a property in Orlando. Before making that decision, it’s important to ask yourself six key questions.
1. Why is the home listed at the current price?
A good deal on an investment property often starts by finding properties listed below market value. But there may be a reason why it’s listed at that price, and knowing this is more important than scoring a good bargain. Carefully go through the property to see if there is damage that’s hidden or if it needs major repairs. Unless you’ve planned to invest a large sum of money into fixing it up, you’ll want to avoid a property like this. Anything spent making the property habitable must be factored into your rental margin, so why the property is underpriced matters.
2. What is the state of the local real estate market?
No matter what area you plan to purchase a rental property, you have to be well versed with the neighborhood and local market first. You’ll also need to know if there are other rentals nearby, and how many. You should find out what the going rental rate is for properties like the one you want to get, and how have those rates been trending— whether they have gone up or down recently. Crime rates, nearby amenities, access to public transportation, the local job market, and more are also important aspects of a rental’s location. Ideal locations usually offer a moderate number of single-family rental homes that have quite low market values but comparatively high rents.
3. What is your expected rate of return?
Together with making sure you get a good location and price, you should also calculate a potential rental property’s rate of return before making an offer. The rate of return, or capitalization rate, may differ from location to location, but it usually falls between 4% and 10%.
To get the capitalization rate for a potential investment property, calculate your net operating income (rent minus expenses) and divide it by the home’s sale price. Make sure to include the incidental expenses such as the property taxes (which you can get from the county assessor’s office), Association fees, and any extra insurance required if the property is in a location prone to natural disasters.
The best practice would be to keep total expenses to about 50% of the gross rents – this is known as the 50% rule. If the house you want to buy doesn’t give a good return, move on. There are plenty of other opportunities out there— properties with better deals.
4. Are there ways to quickly increase the value of the property?
In a competitive real estate market, bargain properties can’t just be found everywhere you look— it’s just not that easy. This is where real estate investors can put in some creativity and vision, because there are some quality rental homes that others may have passed up but is actually still a good deal. To get that good deal, you can add value to a property, and there are a lot of ways to do that.
To illustrate, you can upgrade the interior with modern flooring or new appliances. That would increase its value. You can also add a second bathroom if the house only has one. There are some houses that have dens, sunrooms, carports, or other areas. You can quickly and inexpensively convert these areas to increase the property’s total square footage. By updating and converting the rental property, you are adding value to it. This added value would translate to the positive cash flow you want.
5. Does the property fit into my niche or area of expertise?
One beginner mistake that some new investors make is to purchase a property in Orlando without studying it closely. They may think they’ve found a bargain or perhaps they’re pressuring themselves with a certain deadline for their next purchase. But there may be a lot of problems you’ll encounter if that bargain property isn’t in your field of expertise, or if you feel pressured to go on with the purchase even though you’ve seen clear warning signs.
It’s a smart move to develop a deep understanding of one niche or segment of the market so that you could judge for yourself whether or not an investment deal is truly a great deal or if it’s just too good to be true. Likewise, being patient and waiting until the right deal comes along is a necessary skill of investing in rental properties.
Even though the people you know seem to be buying now, that doesn’t mean that it would be good for you too. Make certain that any prospective property helps achieve your goals and fits in your specialty area. This will help you steer clear from the most common investing mistakes.
6. Who will manage the property?
Successful rental property investment is also one that appreciates over time. However, to be sure that your property continues to grow in value, you should have your property managed by a professional who is both trustworthy and experienced. If you do have the expertise to manage your property, you’ll need to see if you have the availability to handle the midnight emergencies or repairs.
If you prefer to have the management handled by someone else or if your rental property is located far from your home, then you’ll have to hire a property management company that will work toward your investment goals. Professional property management companies like Real Property Management have grown to become a reliable, nationwide resource for rental property owners like you.
In Conclusion
Don’t jump into purchasing that rental property in Orlando without first making sure that you have the best and most recent information available. Real Property Management Freedom offers a free rental property assessment that can make your decision-making process so much easier. Take advantage of this valuable service by contacting us online or giving us a ring at 813-867-2667 today.
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