8 Key Questions To Ask Before Purchasing A Profitable Rental Property

8 Key Questions To Ask Before Purchasing A Profitable Rental Property

There are several ways investing in real estate can be profitable. You can buy properties, renovate it to increase value, and sell it at a higher price. You could claim depreciation on your investment property in the form of tax depreciation schedules to maximize cash return. You could also make steady monthly income by buying a rental property.

Regardless of your investment strategy, buying a property is a massive investment. Managing that property makes it tougher as the field of real estate is filled with landmines which can affect your returns. That being the case, you should be very critical with choosing where to invest in, especially if your business involves tenancy.

If you're planning to be a rental property investor, here are some of the important questions to ask when shopping for a profitable property.

1. How populated is the neighborhood?

Population and vacancy rate are two factors that give you a gist of how successful you'll be in attracting tenants. Look for areas with growing employment opportunities as well as areas with schools and universities. These locations tend to drive more people, hence more tenants to flock.

Take the golden law of supply and demand in mind; high vacancy rates force landlords to reduce their rents in order to get tenants while low vacancy rates allow landlords to raise rates.

2. Is it near attractive amenities?

It's a no-brainer – properties near parks, malls, gyms, restaurants, recreational establishments, and public transport hubs have a higher chance to attract potential tenants.

3. Is it safe from natural disasters?

Nobody wants to live in a flood-prone area, or near the fault line. With this, it's a must to investigate the potential natural threats which may jeopardize your property. Earthquakes, flooding, and fire are three disasters to keep in mind. Getting your property insured is a good option, but if high insurance premium eats away your rental income, then you might want to keep looking.

4. Is it protected from crime?

They say peace of mind can't be bought, but you can buy a property that is free of crime and that's pretty close.

When investigating, don't merely rely on the words of the homeowner or agent hoping to sell the house to you. Go to the police station or research online about accurate crime statistics for various neighborhoods, both for serious and petty crimes, as well as the area's current events. You should also look into the frequency of police and security personnel in the neighborhood.

5. Do you see future development?

Do the place have development plans in the future? Check the municipal planning department, and ask about the development projects which have been zoned or will be implemented in the area. You want to know if the area has an indication of good growth. New condos, malls, business parks, and commercial buildings are reliable signs.

6. How much is the average rent in the area?

Check what your average rental income will be. If charging the average rent isn't enough for covering your mortgage payment, taxes, and other expenses, then keep looking.

7. How big is the property tax?

As an investor planning to make money from a lease, you might want to check how much money you'll be losing to property taxes. The town's assessment office has all the tax information on file. Another tip is to talk to homeowners within the community.

Investigate where the area will be headed in the next couple more years and how your income will be affected by these changes. If you can afford the property now but major improvements and property taxes are expected to increase dramatically, then what could be cheap now may mean bankruptcy later.

8. Does it have an appreciation potential?

After evaluating the neighborhood, look for a property that is likely to appreciate quickly. You can raise the value of the house should you choose to sell it after a few years. Generally, a property that will entice tenants who are willing to pay out higher rents with a few cosmetic changes and renovations has appreciation potential.

City Property VS Regional Property

The good thing about properties close to the city is they tend to see higher growth than regional properties. Bustling cities and suburban areas, generally, have steady population growth, employment opportunities, lifestyle features, and commercial establishments which contribute to the consistently high demand for housing and positive cash flow.

The downside, however, is buying properties in metropolitan areas can be expensive for some investors.

In regional areas, the capital growth tends to be slower. Sale times and vacancy rates could also be potentially longer. However, affordability is predominantly the top reason to invest in a regional property. You just have to look for an area with a thriving economy, manifested by growing employment opportunities, schools, and amenities that attract tenants. Some regional areas have a diverse range of industries bolstering the local economy, making rental returns high as well.

Author Bio: Sophie Harris is a resident writer for Depreciator, an Australian-based business specializing in Tax Depreciation Schedules. Being an enthusiast of pursuing financial security herself, she writes and shares self-help articles focused on personal finance, tax planning, and property investing.

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