It’s a good thing that the human body is constructed the way it is, which is to make it difficult to do any real damage by kicking yourself. Particularly after many of us recall quite clearly how incredibly low local prices dived during the last decade’s real estate meltdown. When you see the bounce back the intervening years have brought, if you are at all investment-minded, you want to at least smack your forehead…
The good news isn’t just that the rebound looks to be progressing still, but that in the realm of town rental investments, the wished-for growth in underlying value of any investment property may be only half the goal. There is also the ongoing cash-generation to consider.
If you were to set out to search for a property to become one of the local rental investment income producers, one place to start out is to think about a two-part qualifying question:
Part 1: will you be actively managing the rental investment property? Realistically, do you have the time and inclination to do so? As a true investment rather than a sideline avocation, the answer to that question should take into account what your time is worth elsewhere. Whether you are a fully-engaged professional or a massively-overstressed soccer mom (or, heaven forbid, both!), the cost of hiring a professional management firm might be the better choice. Zillow notes a starting point for estimating management services at around 6%-8% of the rent number (which may or may not include services like re-leasing services).
The answer to that Part 1 consideration will give you a firm basis for estimating the answer to Part 2: What is the price range of the properties you should consider. Managing the rental yourself will increase the bottom line, but that’s only one of your rental’s operating expenses. The complete operating budget will include maintenance (generally ballparked at 1% per year of the property’s value), insurance, taxes, and any HOA and gardening fees.
The next step is to investigate what the income stream is likely to be. The local classifieds will show what comparable area rentals are going for. There are also a number of online information sources like Rentometer, craigslist, Zillow and Trulia that should supply a good approximation of today’s market. Once you find where those rates stand, you’ll be able to pencil out the cash-generating potential of candidate property.
At every step of the way—from first looks at the many promising local rental investment properties, to introductions to the kind of reliable local tradespeople who make a landlord’s life easier—I offer my clients fully-engaged service and advice. Give me a call!