An ideal rental property has positive cash flow, isn’t a headache for the owner-investor, and is attractive to quality tenants. Here are factors for real estate investors to decide how to choose a rental property to purchase.
Pick a Property in a Safe Neighborhood
It’s helpful to remember tenants want to live in safe communities that offer desirable amenities. That doesn’t mean you have to limit yourself to Boston’s most stellar neighborhoods. In fact, it’s difficult to be a profitable real estate investor in those communities. However, it’s wise to check crime statistics to ensure you’re not buying a property in a troubled neighborhood. Talking to area residents and visiting the neighborhood at various times of day are additional ways to determine if you feel safe there.
Avoid Investing Where Other Landlords Aren’t Successful
You want to know if the neighborhood’s landlords are largely successful or struggling. Boston has many great neighborhoods where you can find suitable properties to invest in. Yet there a few neighborhoods that aren’t ideal for real estate investors. It takes thorough research to know which category a neighborhood falls in. An abundance of ‘For Rent’ signs indicates a community with a high vacancy rate. Another sign that a community struggles to attract tenants are lots of rental ads offering discounts like waiving the security deposit or one month’s free rent.
Look for a Property in Good Condition
Properties that need cosmetic improvements and minor repairs are fine. Replacing the carpet, painting interior walls, and fixing faucet leaks are examples of minor improvements. Properties that require major improvements or have structural damage can serve as case studies for how to lose money buying real estate. Foundation problems, roofs in need of replacement, and homes that need rewiring are some of the major problems that new investors may want to avoid
Determine the Potential Return on Investment (ROI)
You have to decide what minimum ROI is acceptable to you. Many investors want this number to be at least 10 percent. Others won’t go lower than 15 percent. To calculate your ROI, consider the amount you would invest in the property and how much you expect to make from the investment in one year. This example illustrates how to determine your ROI. Your initial investment (down payment plus closing costs) in the property is $30,000. After all of your expenses, you expect to have a positive cash flow of $250 a month. You’ll earn $3,000 in a year and your return on investment would be 10 percent.
Have you found a great rental property in Boston? R.H. Blanchard Contract & Design can assist you with property management and property maintenance. Contact us for more information about how to choose a rental property.