When I have rental properties, the four key factors I consider are strength of the local rental market, eviction time line and cost, the age of the property, and the type of neighborhood.
The lower the vacancy rate in the area, the fewer reserves you’ll need for vacancies. Your city’s housing department or local newspaper may have articles or statistics on vacancy rates. You should have enough cash reserves to pay for one month of vacancy per unit. Even in a good market, you’ll deal with problem tenants who may stop paying rent and require an eviction. Good tenant screening will help solve this problem. When renting properties, always do a rigorous background check. This includes reviewing credit reports, employment verification, references and calling current & previous landlord.
With newer and recently renovated properties, you won’t need to anticipate many repairs in the first few years. Remember, always hire a professional property inspector before you buy. Inspectors will go through the property to ensure you’ll have no surprises later. Also, keep in mind that many utility companies offer a fixed monthly payment option so you don’t experience payment swings each season if you’re paying for heating, water or other utilities as the landlord.
If you are renting property in a low-income neighborhood, you can expect the turnover to be much higher than in high-income areas. Multiunit buildings with small units and one bedroom apartments will attract more single people who tend to move more often than families.
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