A Handy 8-Step Check List Before You Buy That Rental Income Property
Experts are saying that 2016 is going to be a great year for real estate investment, so we know it’s a great time to invest in rental income property. However, that doesn’t mean you need to throw all caution to the wind and invest in the first building that comes along. That’s why we’ve prepared this handy checklist of criteria that are sometimes overlooked, but should also be on your radar before you buy.
- The cap rate is a handy measure for determining investment value, but don’t rely on it solely because this rate is often calculated without including all the expenses, or on rental incomes that are based on pro forma rates rather than actual rates. Always look at the gross rate multiplier (GRM) too.
- Always request rental comps for surrounding areas. A 1 mile or 1 kilometer radius should do the trick. It’s important to know what the rent is going for in nearby complexes so you can get a more accurate picture of the rents that your building can command.
- Find out if the building you are looking at is subject to rental control. Rent-control laws vary from city to city, so don’t assume that the laws for one city apply to another city just because the two cities are in the same state.
- Consider the location and neighborhood of the building. Is it a high crime area? Is it located near a park and school or near a factory or a busy street? Who makes up most of the residents in the neighborhood? For example, are they families? Singles? College students? Older, long-time residents?
- If it’s a new building, does the developer offer a warranty? While new buildings are definitely attractive and would appear to require less maintenance, they can also come with their own set of ‘new building’ problems. As a result, developers sometimes will offer a warranty on their work to cover these types of issues.
- Are each of the units separately metered? Is there ample parking in the building? Is there a laundry area on the premises or a storage area? These are important considerations as well, as they could be an extra source of income or expense.
- How many units does the building have? Often, the number of units a rental income property has affects the type of loan you can get on the property.
- How many days has the property been on the market? Otherwise known as DOM, the days on the market can give you a clue as to whether the seller is more or less likely to negotiate.