Purchasing a rental property is a big decision and one that requires a lot of research and planning. Buying an investment property poses many options and each property type has a benefit depending on the buyer’s goal. Auburn property management team, RPM Select, manages multiple types of properties, all with a variety of returns. Each property has a specific goal, targeted clientele, advantages, and disadvantages. Let us help you learn how to purchase your first investment property and educate you on the best selling points for renters so you can get the maximum return on your investment.
Financials of Purchasing an Investment Property
Planning ahead of time to purchase an investment property is a must. It requires a large amount of capital to put a down payment on a secondary or rental property. Unlike purchasing an owner occupied house, which requires a minimum of three percent down, a rental property down payment is a minimum of twenty percent. This is due to the fact that mortgage insurance is not allowed on a rental property. If you are purchasing a house in Auburn for the median home selling price of $475,000 according to Realtor, the minimum required down payment would be $95,000. Most people do not have $95,000 lying around. They get it through saving and investing. Auburn property management teams suggest investors plan ahead and know the price range of what they can afford when buying a rental property. In addition to the down payment, investors must consider the cost to finance an investment property. Interest rates are higher on rental properties compared to primary residences. A high interest rate could eat away at profit. This is where an all-cash offer can come in handy. It is make or break that investors and their real estate agents accurately calculate the margins.
Rental Property Margins
- Determine a Rental Price: Conduct a market research analysis to determine an accurate rental rate. Look at similar properties that are currently listed for rent within a 5 mile radius to see the competition. Similar properties would be ones with the same number of bedrooms and bathrooms, square footage within a 500 range, comparable upgrades and amenities, and lot size. Price your property high, but competitively
- Maintenance Costs: A good rule of thumb that Auburn property management professionals recommend is for investment property owners to set aside one percent of the value of the property to account for maintenance each year. Keep in mind that new properties will likely have lower maintenance costs while older properties will have higher maintenance costs. There will be some months where no maintenance will be needed, while others may require a larger amount to cover repairs needed.
- Other Costs: Investors must factor in the cost for homeowner’s insurance, property taxes, homeowner’s association fees, and additional property fees like landscaping, snow removal, or pest control. Rental properties do not stay rented 100 percent of the time. It is wise to consider the vacancy rate of the area that you are looking to purchase a rental property. Best Places states that Auburn, CA, has a vacancy rate of only 2.1 percent.
Be realistic with financial estimates when purchasing a rental property. Error on the side of being conservative in your numbers. Doing so will increase your chances of buying a profitable investment.
Purchasing the Right Rental Property
Buying the right property for the right investors is crucial in Auburn property management. Single family rental homes generally attract long term tenants, but they also cost a lot more than a condo. A condo provides a more affordable investment, but with the condo may come more transient tenants and an association fees. For the sake of long term tenancy, choose a single family home for a rental. Families with children who are enrolled in the school systems are likely to put down roots and stay for a few years in the rental property. When they are ready to vacate, they will likely do so during summer, when the rental rates are higher than winter and there is a vast number of renters seeking new homes. Look for a rental property that has at least three bedrooms and two bathrooms, provides an open and functional floor plan, a garage, and a yard. Purchase a rental home in a neighborhood that has high ranking schools, close proximity to shopping and dining, quick and easy freeway access, and parks. Prior to determining a property, research neighborhoods that allow rental properties. Homeowners associations often have restrictions or do not allow for rentals.
How Auburn Property Management Pros Can Help You
Owning a rental property is a 24-hour job that does not sleep. Whether it is a maintenance emergency or the property is in the leasing phase, property management can often leave owners feeling a heavy burden and sense of overwhelment. RPM Select is here to lift that weight. Our professional leasing team can offer investment property owners preferred member pricing on maintenance, affordable management fees that practically pay for themselves through our faster leasing times, achieve maximum rent prices, and provides affordable and preventable maintenance. Stop feeling overwhelmed with your rental property and call us today.