7 Steps To Take When Buying Your First Rental Property
Real estate is one of the safest investments you can make — if you have enough capital for it. However, that doesn’t mean it is necessarily easy. Before you throw yourself directly into the rental game, make sure you are fully prepared and that you are taking the right steps to guarantee a good return on investment.
Do Your Homework Real estate can be a complex business, so don’t throw yourself into it without doing some research. Read books, listen to podcasts, buy magazines, and start to familiarize yourself with the lingo and the basic concepts. If you need some ideas, check out this list of must-read real estate investing books as determined by experts.
Decide on Your Target Audience The first thing you need to do before you start house hunting is to figure out whether you’re targeting long-term renters or short-term vacation renters. Short-term vacation rentals tend to have a higher return on investment, and they are usually an easier step into investment property for beginners. This is especially true if you’re buying in a popular vacation spot like San Diego.
Choose the Right Area The choice of neighborhood will determine not only how attractive your property is for renters but also what type of renter you attract. As Turnkey points out, in San Diego, you could pick something near La Jolla or Stone Steps Beach to attract surfer types, Torrey Pines for people interested in nightlife, or Penn Station for family tourists interested in the zoo and museums. Make sure you pay close attention to the markets in the area you choose to make sure the investment you’re making is perfect for your situation.
Look for Homes with Outdoor Space According to the American Institute of Architects, outdoor spaces top the list of “special function rooms” requested by consumers. This reflects the growing demand for outside living spaces, which can also be seen in the rental market. Even a small outdoor space, like a porch or patio , can make a big difference in your ROI. Keep an eye out for these features, but avoid anything with complex landscaping as this will involve expensive maintenance.
Budget for Repairs Renters damage things. They may not always mean to, but they do. You need to account for this in your budget and pricing strategy. The industry-standard rule is that you need to save at least 1 percent of your property’s value every year, but this is somewhat of a conservative estimate. Account for more maintenance, especially if you’re setting up a short-term vacation let (people on vacation tend to be less careful than people who want to make a place their home). Devise a Marketing Strategy Even in sunny San Diego, rental homes don’t sell themselves. You can’t expect to just list your property on a few websites and be done with it. Instead, you need to come up with a detailed marketing strategy. In particular, get savvy with social media. There are several ways you can incorporate social media into your strategy, from advertising to following market trends, networking, and generating new leads.
Price Your Rent Correctly Your pricing strategy will depend on what kind of rental property you are going for. For a traditional long-term rental , you would usually determine the value of your house, and then charge a given percentage of it every month. Usually, this sits between 0.8 percent and 1.1 percent. Cheaper homes (under $100,000) should charge on the upper end of this scale, while pricier houses should aim lower so the rates are still accessible to your target audience. Vacation rentals tend to charge more. One popular strategy is dynamic pricing, where you adapt your rates to the demand at a given time of year. Alternatively, you could keep your prices constant to attract initial buyers. Above all, keep an eye on the competition; have a good idea of average rates in your area for both vacation homes and hotels at different times of the year.
Investing in rental property is a challenge, but if you’re up for it, it could be one of the best decisions you’ll ever make. Just make sure you take your time, don’t rush the process, and think over every decision carefully. Just a bit of extra time and thought can make a huge difference when it comes to your long-term returns.
- Katie Convoy