There's a reason why a lot of people are considering being a landlord. Buying an investment property can be a lucrative venture, especially if you do your due diligence. There are a couple of factors to look into to ensure you buy the right property when buying real estate in Houston, but what exactly are they?
Financial Aspects
Down Payment
The kind of property you'll buy will largely depend on how much you can pay for the down payment. It can also determine the amount for your mortgage payments. A larger down payment means lower monthly mortgage fees for your real estate investment.
Mortgage Rates
You have to account for several factors when calculating mortgage rates. It's not enough to know the amount. You have to determine whether your rental income will be enough to cover the payments after deducting other monthly expenses. It's best to research mortgage interest rates based on loan options to find the best deal for you.
Property Taxes
The average effective property tax rate in Texas is about 1.60%, which is higher than the national average of 0.99%. You'll have to include this when calculating rental income, especially since you have to account for all the bills you'll be paying for.
Closing Costs
Rental property investing calls for other costs aside from the down payment. You'll also have to consider closing costs such as insurance, appraisal fees, and attorney fees. These can all stack up and add to the overall costs rental property owners have to pay.
Rental Income
Estimate the potential monthly or annual rental income you get from rental property to find out if you'll be able to afford all the initial and ongoing payments you have to make. Ensure that you still have positive cash flow after all the deductions such as mortgage payments, property taxes, insurance, operating expenses, maintenance costs, and vacancy.
Property Based Factors
Location
The location of rental properties plays a huge part in its profitability. You'll likely maximize your investment property more if it's close to amenities, schools, jobs, and transportation. Potential tenants also consider whether residential properties are in a good neighborhood.
Even the property type you should purchase can significantly depend on the location. If you plan to purchase a property within the city center, you might benefit more from a commercial building, while an apartment building will be the better investment near colleges.
Type
There are several types of property you can invest in and even more sub-types under those categories. For a residential property, for instance, you can decide whether you'll go for a single-family home, an apartment building, a condo, a duplex, or other types.
As for a commercial real estate investment, there are investment properties you can consider like office buildings, retail spaces, warehouses, and more. Unlike commercial real estate properties, residential rental properties might require more attention for property management.
Condition
In real estate investing, you are required to assess whether the property is in good condition, or if the maintenance and repair costs are worth it. Weigh whether the real estate property value increase after repairs and renovations will positively affect potential cash flow for income.
Rental Market
Consider the current rental real estate market condition when buying a rental property, as it can help you foresee how your investment property will fare in the business. Even if it's a good investment property, you won't be making money when there's low rental demand in the housing market.
Investment Strategy
Long-Term or Short-Term
Your ongoing bills such as monthly mortgage payments can depend on your investment strategy. Short-term investments will provide you with a shorter time frame to fully acquire your rental property, but that would also mean that your monthly payments will be a lot higher.
With long-term investments, you'll pay smaller amounts and will have an easier time finding real estate investors. However, you might get higher interest rates, depending on the investment property loan you took. Both options have their advantages and disadvantages.
Management
Believe it or not, you don't actually have to manage your rental property. A lot of property owners are now choosing to hire property managers.
There are several property management companies out there such as Precision Realty. Aside from the day-to-day responsibilities, a property manager will also market your rental property as well as handle the tenant screening process, allowing you to earn passive income.
Diversification
Think about how many investment properties you want to purchase in the foreseeable future. It's advisable to diversify your investment property portfolio to help mitigate potential losses. Having more than one rental property also means several sources of monthly rental income.
This is also where a property manager can come in handy, as scaling with your growth will be difficult on your own.
Exit Plan
Buying a rental property can sometimes end in the owners selling the property. It could be due to the monthly mortgage payment being too high, or they simply do not want to be in the rental business anymore. In case you do end up in that circumstance, you should have an exit strategy ready.
You can sell your real estate investments and with good maintenance, you can avoid property depreciation and could even see an increase from the original purchase price, making it an even more profitable investment.
Hiring a Property Manager for Your Rental Property
If this is your first rental property, you might find the responsibilities of a landlord a little overwhelming. Between collecting rent and monitoring the local market, there are a lot of things to take into account for a successful rental business.
Hiring a management company like Precision Realty could be worth the management fees if it helps you reach your investment goals. Some of the services we offer include marketing, tenant screening, rent collection, maintenance, accounting, and more.
You can schedule a free consultation now to learn whether you could benefit from hiring a property management company. But first, you can use our free ROI calculator to discover the potential of a property you have your eye on.
