Most people think of a home mortgage as a way to get the money up for a home purchase for you and your family, and this is indeed their primary use. However, another service we offer at American Loans & Mortgages is one that fewer people think of in the home loan sphere: Rental or investment properties.
Simply put, a rental property is a home you own and manage in a landlord type role. You bring in tenants, who pay you rent. These are also called “investment properties” because of the potential for you to turn a solid profit during this process. There are a few important things to consider when looking to purchase a rental property. Let’s take a look.
Location
Perhaps the biggest factor in things like attracting good tenants and your ability to charge a robust rent is the location of your property. Some things to consider include proximity to a desirable school, crime rate, local amenities, property values and rent levels in comparable properties in the area. This is your first change to set a good baseline and attract the right kind of people.
Investment Potential
This is an investment for you, and like any other investment, you have to make sure the math works. Consider all your potential expenses, and then compare those with the income you stand to earn through rent. Find out if the property has a strong rental history, or if there are any long vacancy histories. Look at expenses from the property over the last 12 months, and review profit and loss statements for several years if they’re available.
Unexpected Expenses
As part of the nature of the business, rental properties generally require a bit more maintenance than most homes. Keep in mind that many of the wear and tear items will be your responsibility as landlord – things like HVAC units, compressors, roof tiles, floors or any water and pipe damage will be on your bill. A professional home inspector is a great hire before you purchase the property, as this person might be able to identify potential issues before they cost you a big amount.
Real Estate Value
You’ll want to assess the market value of your property thoroughly. Some people use the 1 percent rule: If one month’s rent is greater than 1 percent of the home’s value, it’s a good deal. If not, it’s likely an overpay. Others assume the deal is solid if rental income will allow you to pay off the mortgage within 10 to 15 years. The common denominator is price versus cash flow, and we can help you with appraisals in many cases.
Want to learn more about our mortgage options for rental properties, or any of our other services? Our brokers are standing by at American Loans & Mortgages to serve you today.