By: Corey Tyner
Phoenix Fast Sell Home Buyers
Many consider acquiring an investment rental property to generate passive income. In order to make sure that your investment will pay off, you’ll want to ask important questions. In considering the location, the bones, and your personal financial status and goals, you’ll be able to secure a great investment rental property that’ll generate you passive income in no time.
Consider Location First
While you’ll likely find changes that you’d want to make with any property, the location is one of the characteristics you’re stuck with. Weighing the benefit of a great neighborhood that’ll attract more renters with a home that needs new countertops can help you make your decision. The location includes the plot of land, the characteristics of the neighborhood, and the makeup of the school district. If the particular home isn’t conducive to renters or isn’t in a competitive neighborhood, you could find yourself at a loss down the road. Location will also help decide what the maintenance costs will entail, like if there is a large yard that’ll require a lot of landscaping or a pool that’ll attract renters but require upkeep. If the property is far from where you live, you will also want to think about if you’d need to hire a property management service.
Make Sure You Have the Full Picture
An investment property is a large financial commitment, so you want to be sure that you’ve properly allocated for both the initial purchase and the regular upkeep costs and any taxes that you’ll have to take on.
Real estate experts refer to the “1% rule”, which says that you should expect to earn 1% of what you paid for the property each and every month in order for this to be a good investment. This price should include the projected costs of the renovations you’re expecting to have to make to the property.
It’s also important to add property taxes, insurance, HOA fees, and property management expenses (if you’d have to hire a property management service). Repair costs, alterations to the local economy, or potential raises in property taxes are other considerations. While these amounts will vary year to year, it’s important to allocate them in determining how much property you can afford.
How are the “bones”?
“Bones” of a house include the foundation, roofing, layout of the rooms, and plumbing that add hidden value to the house. While you can make tons of renovations inside to increase the value, changing the foundation, roof, or floor plan can be a much more expensive undertaking. If the property you’re viewing has a sinking roof or foundation with damage, it might not be a financially lucrative option.
Consider the construction materials that were used and if the foundation is solid. Wood construction versus ICF block homes have their own pros and cons, and brick and concrete are generally regarded as safe bets. The roof is another place to look, as having to replace the roof can bring an unexpectedly huge cost. Make sure that the roof isn’t cracking or sinking in any spots; if it looks like there’s been minimal wear and tear, that’s a great sign.
An investment property is an exciting way to generate passive income once your ducks are in a row. In considering the location, bones, and your full financial status, you will be able to find a house that genuinely suits your needs and income goals.
Corey Tyner is the owner of Phoenix Home Buyers and Buyyodirt. He is one of the top real estate investors in Arizona with over a decade of experience. His work has been featured on Bigger Pockets, Real Estate Agent Magazine, and several other real estate investor publications.