5 Tips for Purchasing a Rental Property

Los Angeles investment property
Investing in real estate can be a benefit to your financial portfolio, but not without careful research and the right knowledge. With the right information, investors can avoid critical mistakes when purchasing rental properties that might end up costing big money in the long run. Here are a few tips on what to look for when searching for a potential rental property.

DON’T: Get in over your head

Today’s popular home improvement reality shows can make the renovation process look glamorous and fun. However, unless you are a skilled contractor or know someone who can execute renovations professionally but cheaply, your out of pocket costs are going to add up and gradually deplete the value of your return. Beware of signs that the fixer-upper you’re considering might be a mistake, such as a poor floor plan or issues with the foundation. These are not going to be quick fixes and will cost you valuable time and money.

DO: Look for a property in the right neighborhood

Purchasing a property in an area where the rental market is already thriving will increase your chances of high profitability on your investment. Look for neighborhoods that cater to specific renter demographics—college or university students, young professionals, seasonal workforces, and those with travel-heavy occupations are consistently in the market for rental options.

It is also important to do your research on the properties surrounding the property that you’re interested in. Are many properties nearby also rentals? This could potentially cause too much competition when you start to look for tenants.

DON’T: Make a poor location decision

You can change or upgrade almost anything about a rental property, but the one thing you can’t change is its location. Consider the rental demographic you’ll be going after and what they’ll be seeking. Students will want to be close to their campus, young professionals will want to be close to their jobs, and families will want to be close to schools.

The location of your rental property will also be a big factor in profitability when it comes to your investment. The ideal scenario is a location with a low supply of rental properties but a high demand for them. These factors, as well as your proximity to amenities, will play a role in determining how much you can charge for your monthly rent, and in turn, whether or not your rental income will be positive or negative.

DO: Investigate everything

If the house is outdated, the landscaping is a mess, or the flooring desperately needs to be replaced, potential renters may be less likely to pay a rental price that will help you see a return on your investment. Look for a property with faults that can be easily updated or—even better—one with issues that you can fix on your own without needing to hire outside help. Worn out wallpaper can be taken down and repainted at little cost to you, outdated kitchen cabinets can be easily refreshed, and hardware can be replaced cost-effectively for a quick update.

DON’T: Overlook big issues

Pay close attention to the issues that can lead to major property damage and a major investment of time and money. Check the gutters to make sure they’ve been maintained properly and don’t have any signs of cracks or severe dents that could cause you to be a victim of flooding. Survey the foundation and base of the property for cracks or holes that may lead to flooding or uninvited pests. If you do notice any cracks in the gutters or foundation, visit the property during and after rainfall to see if any flooding has occurred. This will help you gauge if there may be water damage within the infrastructure that isn’t readily visible. If so, you should definitely investigate further.

If you need rental financing or fix and flip financing, contact CIVIC's experts today at 877-472-4842.

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