Selecting the Best Location to Purchase a Rental Property
It is no longer a surprise to hear about regular homeowners who are looking for second homes to turn into investment properties. People are looking for ways to bring in a stable second income to increase their wealth. Whether they are looking at this investment avenue as a second job or possibly a full-time investment career, people are snatching up rental properties in prime locations.
If you have the finances and the motivation to get involved with rental investment property, you may be wondering about where the best location would be to purchase such homes. Here are some helpful tips you can use to narrow down the neighborhood choices to pick the right area to buy a rental home.
Consider the Lifestyle of Your Potential Renters
The types of renters that you want in your rental properties can dictate the location on where to purchase an investment home, the size of the house, and neighborhood amenities. You may want to purchase a large home in the quiet suburbs, which would be ideal for people who are looking for yard space or working professionals who want peace and quiet. Yet the rental home might not be ideal for college students who have to make the long commute to classes without having reliable public transportation, or for people who want to be closer to doctor’s offices, stores, and outdoor recreation within walking distance.
You can also use the types of careers that your renters may have as a way to decide on the best location to purchase a rental property. Working professionals may want to live closer to their jobs, while military families need to be at a location by military bases.
Figure Out the Type of Rental Home to Purchase
Normally when you think about rental homes, the first image you see in your mind is a regular single-family home with a small front lawn and perhaps a large backyard or attached garage. Yet for residential rental properties, there are a wide range of investment opportunities.
There are a variety of options for those looking to find investment properties: 1-bedroom up to 5-bedroom homes, townhouses, duplexes, triplexes, and condos. The type of home you want to rent out to tenants can dictate the location, especially if you are buying an existing building and don’t plan to do any major renovations to turn the house into separate living spaces. This circumstance is due back to the time when certain neighborhoods were first developed. You may find streets that have rows of townhomes and duplexes interconnected, or are homes spread out on larger lots.
Pick a Class Designation Location
Class designation in real estate involves a property located in a certain area that has specific qualities that vary by income, real estate costs, neighborhood amenities, and building conditions. There are no hard and fast rules on how certain places receive this designation from investors, and every investor has their own criteria on which designation a neighborhood might fall into. It’s basically a guideline on how properties are grouped together.
Class designations are usually based on a letter scale from A to C. For a Class A location, these are normally the higher end, luxury properties that have everything from great schools, fantastic restaurants, and newly constructed homes. Class B locations are middle-of-the-road existing properties. Class C locations are in places that are more affordable.
Include Property Taxes into Selecting a Location
Besides keeping in mind the types of tenants you want to attract to the rental properties you plan to purchase, also be aware of the property taxes in certain locations. The property tax can have a significant impact on your finances.
One of the main issues that some new investors experience is that they underestimate how much the property tax will be, so they compensate by significantly raising the rent. Unfortunately, the rental rate may be overpriced for the area where it is located. In the end, they may have few interested renters who want to stay long-term.
There are many factors to use in determining the best location to buy rental property. Review the real estate market conditions of the area and other features to figure out if it is the right place to find renters.