Five Key Considerations When Choosing a Rental Investment Property
While more and more people are buying homes these days, this doesn’t mean that the rental sector is any less popular.
All future predictions are for an even more lucrative renting environment, so the attraction of developing a rental property portfolio and a consequent passive income stream is definitely growing. Just last week, for example, The Albuquerque Journal reported that apartments in Albuquerque are in high demand, with strong occupancy rates and climbing rents!
Naturally there are a whole range of personal finance considerations that come into play, but what about choosing the rental property itself?
Today we’d like to look at five key considerations when you’re looking to buy.
Location — Obviously enough, location is absolutely critical to your purchasing decision. The first question you need to answer is what is the demand for rental property in the vicinity of the property? There can be many influencing factors here. In Albuquerque, for example, suitable properties that are within easy reach of UNM potentially offer a never ending stream of students looking for off-campus accommodation. On the other hand, per capita rental income is likely to be limited, due to the resources that students generally have available. Upscale districts can also have appeal for professionals who may be planning to be in the area for a limited time without the commitment of home ownership. This is a more specific market, but clearly the potential returns are much higher than for student accommodation, although volume comes into play if you buy a sufficiently large property with the student market in mind.
Don’t forget the vacation market — While we’re talking about location, there’s no doubt that our beautiful part of New Mexico is getting more and more popular as a holiday destination. Although vacation rentals are very different from long term rentals, they nonetheless have fantastic earning potential. So nowadays this is another income stream you can consider when weighing up the pros and cons of a property’s location, especially if it’s within easy reach of main attractions.
Facilities — Is the property you’re looking at an established rental property? If it is, then there will probably be less conversion work than may be the case with a previously unrented building that you are wishing to turn into apartments, for example. You need to factor any such costs into your purchasing decision. This can be a complex equation, of course, because you may have looked at properties that are purpose-ready, but possibly a lot less lucrative in terms of rental income than another property that requires a lot of work but is better located for the potential renter market sector you’re targeting.
Potential for income growth — It’s quite common to buy an existing rental property with tenants already living in it. This can clearly make for a smoother initial income stream, but those income levels may be at odds with your aspirations for the building’s earning potential. It’s sometimes easier to be able to make a completely clean start if you’re looking to upgrade the property’s facilities to attract more lucrative rents, so you might need to balance those thoughts in situations like this. And, apart from any existing tenant considerations, you’ll also need to carefully examine the likely costs of upgrading against the potential in the area for more expensive monthly rentals. For example, is the property in a location likely to attract high wage earning employees, such as is happening all over the area with the tech industry.
Ongoing property maintenance/management — Condition of the property and its readiness for rental use is very closely related to the amount of maintenance and management that will be needed. Again we come back to location here, because the further the property is away from your own residence, the less easy to manage it on a day to day basis. Of course one option is to employ a property manager or hire a specialist company to handle everything for you, especially if you have other calls on your time other than your rental portfolio. Another possibility is to buy a “live-in” property. This is particularly popular with younger property investors making a start in rentals. If this is an option you’re prepared to consider, then it’s important to find somewhere that can enable you to have privacy and which is adequate for your needs, in addition to offering the right level of facilities for your tenants.
In many ways, buying a rental property can be a lot more complicated than the generally more straightforward process of purchasing one’s own home. That’s why you need an agent with suitable experience on your side. Why not contact us today and tap into our experience in this area and discuss your specific rental investment goals and how we can help you to achieve them.
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The Romero Team is a group of top New Mexico REALTORS that works together to provide only the best service to each and every client whether it be buying or selling Real Estate in New Mexico. Find FREE Home Valuations, Market Data, and all Information about Buying or Selling a Home in Albuquerque, Santa Fe, Rio Rancho, Corrales, Placitas and Valencia County. The Team provides expert representation in many areas including home sales and marketing, serving as Buyers Agent, luxury homes, and vacant land.
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