Not every property can be turned into a moneymaker. Some houses are destined to be duds. Before closing on an income property, consider all of these:
1. Prospective renters: Who is renting in your area? Is it college kids who might be happy with a couple of small rooms to call their own, or families who need more space to spread out? More importantly, will the property you’re looking at meet their needs?
2. Neighborhood: It doesn’t matter how nice the house is, a property in a bad neighborhood is probably not going to rent at top dollar. Plus, a high crime area may boost your insurance costs and could make your property a nightmare to maintain if vandals frequently make the rounds.
3. Price: For this, you need to consider not only the price you’ll pay for the property but also the price you can reasonably charge for rent. What’s more, will the latter cover the monthly mortgage payment if you end up financing the purchase?
4. Taxes and insurance: The list price should be only part of your cost analysis. You also need to estimate the property taxes and insurance you’ll be paying annually. Depending on where the property is located, these costs can make a reasonably priced property unaffordable.
5. Condition: Tenants don’t always make decisions based on price alone. They will also take into consideration the condition of your property. Be realistic about the amount of work a home will need to be marketable, and have it inspected just as you would with any other major purchase.
Source: CBS News