Characteristics To Review Before You Buy A Rental Property

If you are considering the purchase of a rental property, you may be a bit overwhelmed by the number of prospects that are currently available. However, every property may not be suitable for your needs. Here are a few characteristics to review before you decide to buy.

Is the Property Currently Occupied?

If you want to use your rental property to generate passive income, the property must remain occupied by paying tenants. If renters are already leasing the space, they may continue to occupy the property after you assume ownership. As a result, the space may already be paying for itself on your first day of ownership.

Still, if a prospective property is already leased, be sure to ask about the terms and duration of the leases. Also, inquire about the regularity of the tenants' payments and whether or not they have been easy to work with. Poor tenant behavior may not be a sufficient reason to walk away from a great prospective property, but if another piece of real estate offers the same value without poor owner-tenant relations, the second property may be a better option.

How Much Income Does the Property Generate?

As you look for the right property for your needs, consider how much rent you can expect to receive. Consider the rental fees of similar properties nearby. Prospective tenants will often choose the best deal that they can find. More than likely, you won't be able to simply charge higher rental fees to generate more income. The rent should match that of comparable properties.

If the expected rent is less than the monthly mortgage, be sure that you have more than enough savings to cover the difference. Also, there should be enough extra money available to cover the operating costs of the property when the space is not fully occupied.

Where Is the Property Located?

The location of a rental property can have a significant impact on its earning potential. Residential properties that are near colleges or in the most desirable areas of town may stay occupied and demand top dollar for their leases. 

Also, if the area in which a property is located is being renovated or newly developed, the value of the property may rise substantially in the future, offering a large amount of equity. This can be especially important if you plan to sell the property after a few years of ownership.

If you would like to buy a real estate property, schedule a consultation with a real estate professional in your local area.