Are you a landlord who is ready to buy more rental properties? Use the following tips to buy rental properties and create more passive income by adding more profitable rental homes to your North Carolina real estate investment portfolio. And remember, if you are looking for a North Carolina property management company to help you protect your investments and grow your bottom line, contact us now at Red Door Company.
Buying Profitable Rental Properties – A Two-Step Approach
As a successful landlord, you understand the importance of due diligence before buying a real estate investment property. In this blog post, let’s narrow down this due diligence process into two main steps to purchase profitable rentals. First, let’s take a look at how to choose the right local market in which to invest your hard-earned dollars. Second, we’ll share tips on how to choose the right rental home to purchase.
Thriving Local Job Markets for Rental Home Purchases
When researching locations for your next rental home purchase, start broad and research the job market of the city/county/region where you are considering buying investment properties. Because you need a large pool of tenants who can afford to pay rent on your properties, look for locations with growing employment opportunities, high median annual pay, and a higher-educated employee pool. For example, according to Forbes 2016 Fastest Growing-Places, owning rental properties in Raleigh, NC is a smart move for landlords as its local job market is promising and its median annual pay for college-educated workers is also highly ranked. In fact, Raleigh, Durham, and Chapel Hill are perennial “Best Of” list-makers, making the Triangle a highly desirable market for real estate investors year after year.
Average Rent, Rental Property Listings and Vacancies
Some markets deliver higher returns than others. The name of the game is profit. For your rental property to be profitable and produce monthly cash flow, the rent needs to cover your mortgage payment, insurance, taxes, and expenses. Not only should landlords research the average rents in the local area to see if they are high enough to cover costs, but it’s important to research rental trends and see if average rents are stable, trending upward, or (yikes!) in decline.
Research the neighborhood surrounding the North Carolina rental property you are considering buying to see if there is an unusually high number of vacant rental units. This is not a good sign. Real estate investors looking to add profitable rental properties to their portfolio should seek out neighborhoods with a small number of active listings and rental units with histories of renting quickly as these are signs of a healthy, desirable neighborhood.
Review the Rental History of Investment Property
Get specific. After you have done your homework on the job and rental markets and identified potential rental properties to buy, make sure to do your due diligence researching the individual properties. Learn about their rental histories and the average time it takes to fill a vacancy in between tenants. Research similar properties in the immediate neighborhood. Ask to review profit and loss statements for the past three years and pay close attention to the rental properties’ expenses.
Property Inspection on Rental Property
Hire a professional property inspector to provide a report on the overall condition of the rental units you are considering purchasing. After reviewing the inspector’s reports, you will have a clearer picture of what expenses may crop up or what repairs will need to be performed to get a home ready to rent. While you cannot predict every repair cost, a rental property inspection by a professional home inspector can save you from buying a rental home with major problems which could eat up your repair budget.
Financing for Rental Properties
Make sure you have a good understanding of financing costs and obtaining a real estate investment loan before running the final numbers on your potential rental home purchase. Read our landlord’s guide that shares six tips to find financing for buying rental properties for more insight into this topic.
If you are ready to add to your rental real estate portfolio and are thinking of purchasing a rental property in Durham, Raleigh or Chapel Hill, contact us and our team of North Carolina real estate brokers will be glad to help.