Buying rentals: profitable but perilous --
Consider these recommendations
before buying any rental property:
in a desirable location
The cliché that the three most important
factors in real estate are location, location and location is especially true
when it comes to rental properties. Simply put, landlords who don't purchase in
the right location for their market will struggle to earn enough tenant income
to cover their monthly mortgage bill.
finding the right location isn't always easy and varies depending on many factors.
the heart of a busy city, for example, landlords should purchase condominiums,
most likely, or single-family homes located near theaters, shopping, parks, restaurants
and, perhaps most importantly, public transportation.
all boils down to the neighborhood," says Jennifer Vogel, a real estate agent
with Century 21 Sussex & Reilly in Chicago's Lincoln Square neighborhood.
"The biggest thing a renter is looking for when they're renting in Chicago
is public transportation and the amenities in a neighborhood. A lot of people
don't have cars when they're renting in the city. It doesn't matter, then, if
your property has all the bells and whistles. It can have granite counter tops
and a state-of-the art kitchen. But if it's 12 blocks from public transportation
you're in trouble."
are vastly different for rentals in vacation, beach or resort areas. Not surprisingly,
landlords who offer a condo or single-family home on or near the water in such
areas will be able to charge higher rents than will their counterparts whose homes
are located just a short walk away.
in our market is driven by the lake," says Gail Lowrie, associate broker
with Rubloff Residential Properties in New Buffalo, Mich., a resort town along
the shore of Lake Michigan. "Appreciation of these homes is at least 10 percent,
and in many instances more, per year."
is more, though, to purchasing a rental in vacation areas. Lowrie says that in
her market, three-bedroom units are in high demand because the Midwesterners who
typically spend their summer vacations in New Buffalo are families with small
children. Rentals must also be well-kept and clean, or renters will simply move
on to the next available property.
Landlords must also consider what
type of property to purchase. Condominiums are generally easier to maintain, and
they are also easier to find in downtown city markets. But condominiums may be
harder to find along the shores of lake and beach communities. Single-family homes
generally attract families with children who need the extra space and bedrooms
they provide. Condominiums are draws for young couples or single renters.
Another decision: whether to
work with a property management company or handle properties on their own. Property
management firms, of course, don't come cheap, so hiring one will eat into a landlord's
profits. But such firms do take many of the headaches out of the rental business:
screening potential clients, collecting rent payments and handling those annoying
have investors who live out of town I'll typically recommend they hire a management
company," Vogel says. "It's not viable for an out-of-town investor to
be managing properties on their own."
local rules and regulations
One more piece of advice:
Before purchasing a rental property in a specific neighborhood, check with zoning
boards and city agencies. Some municipalities or even homeowner associations have
laws that restrict rentals. Some communities, for instance, allow only long-term
rentals of 30 to 60 days or limit the number of times a year a unit can be rented
out. Landlords hoping to rent properties in vacation areas will struggle to find
renters looking to spend one or two months in their rentals.
Rafter is a freelance writer based in Indiana.