How do you determine whether an investment property is a good fit for your goals? Focus on these four areas before closing the deal.
There are four key areas you need to be aware of when looking to buy a good investment property:
1. Projected income: You want to make some money or at least cover your expenses. A good rule to follow is the 1% rule: If the property costs $400,000, you should hope to make about $4,000 a month in income. This will tell you whether it’s in line with your investment goals.
2. The tenant situation: Is there a lease in place with existing tenants? How long have they been there? What’s their rental history? You also want to understand the management aspect and any issues a management company has faced, like tenants who have been late paying rent. This will help you understand what you’re buying and avoid buying into a bad rental situation.
3. Condition of the property: You won’t find a property that’s perfect with everything ready to roll that lets you sit back for 30 years and enjoy the rental income because it doesn’t exist. Issues will always come up, so it’s important to understand what needs to be done in the short term and what you should be prepared to shell out some cash for. For example, needing a new roof obviously isn’t ideal, but it won’t disrupt the building. On the other hand, if the plumbing needs to be replaced, it will be both a huge expense and disruptive since you’ll have to tear into the units and common areas of a rental property. You might even need to have a vacant building if any tenants are displaced by issues like this.
4. Understand the utilities: Be aware of all the utilities there, what is and isn’t separately metered, and how you’ll deal with it in terms of each individual unit. For example, if the gas is on a single meter, you’ll probably include it in rent. If you have separate meters, you can charge everybody individually. Most importantly, make sure that if you’re trying to pass along costs, you’re not violating any laws or state/town regulations.
If you have any questions about owning investment properties or you’re considering buying one, don’t hesitate to give me a call or send me an email. I’m always glad to help!