Investing in rental properties can be a great source of income, a way to save for retirement, or diversify your investment portfolio. However, not all properties are ideal for renting. Often, new investors will overlook the cost of investing in a rental home—and we don’t just mean the expenses, but the stress managing a property in Texas can involve.
One way to avoid the headache is to partner with our local team at Real Property Management Campanas. Today, we'll discuss the difference between a golden property pick and a terrible investment, the distinction between a "rental home" and one you live in, and how a property management team can provide the help you need to make the right investment decision from day one.
Not All Properties Are "Rent Worthy"
One of the first things to consider when looking at properties to rent is if it follows the 1% Rule. There is an excellent monetary breakdown of a rental property that just wasn’t worth it in the end, and it explains this rule of thumb used by property investors. Ultimately, you want to be able to rent the property for at least 1% of the total amount you paid for the property. An easy example would be if the amount of your home loan is $200,000.00, the amount you should rent for is $2000.00.
If you’re unable to meet this but are within 0.07%, then this rental property is worth purchasing. Anything less than that and you’ll most likely end up underwater with your mortgage.
To determine what you’ll be able to charge for rent, you’ll want to conduct a market analysis. A market analysis considers comparable properties in your immediate area that are close in square footage and amenities offered. If you’re finding rental rates to be much lower than your 1% threshold in those comparable properties, it’s reasonable to assume potential tenants won’t be willing to pay a higher price and your property could stand vacant, which would be a huge loss in Castle Hills.
The Legal Differences Between Home and Investment
Say you end up needing to move, but you’re unable to unload your current property. This sounds like an excellent opportunity to turn your previous home into a rental and earn some extra cash while you wait for the market to pick up! However, the changes you may need to make to your former residence to comply with your local rental laws could be staggering.
When looking for that ideal investment home, you want to make sure the house is up to code—but if there are some repairs to be made or upgrades you want to include, you can negotiate the price down with the current owner and take care of it later—this isn’t the case when renting a property. A rental property has to meet the standards set by your local laws before you’re able to offer it to potential tenants. On top of these policies, you’ll most likely end up doing some remodeling (regardless of scale) to charge the best rental rates.
Passing an overall inspection of the building’s structure could end up costing you a pretty penny, and even small safety features like changing locks and adding deadbolts can add up—especially in addition to any significant remodeling that should be done to make the property presentable to renters. All this must be kept in mind when scanning over potential investment properties. Remember, you're no longer buying for yourself—you're buying for potential tenants looking to rent your Castle Hills property.
Property Management Bridges the Gap
Understanding the market, legal compliance, and an overall starting budget is something we pride ourselves on knowing inside and out. The team of Real Property Management Campanas that works with the Castle Hills area is staffed with local experts that can help you make the best decision for your rental property goals.
We are proud to offer decades of dedicated experience with the following:
- Scouting out properties in the area you would like to invest that meet your budget and will rent within the 1% rule.
- Analyzing your current property that you may be stuck with and advise how best to move forward with an in-depth market analysis.
- Helping you manage your budget when it comes to repairs, additions, and remodels and supply a list of contractors that will help you at a potentially lower rate than if you sought them out on your own.
- Providing professional marketing, tenant screening, rent collection, maintenance, and so much more to ensure that your ideal property is occupied by upstanding renters that will help your investment grow.
Considering all of the factors that go into renting a property can leave you with no-where to turn and carrying a truck-load of debt if you don’t choose your property wisely. Contact Real Property Management Campanas today to get a FREE analysis of your Castle Hills rental property or have us help you find that ideal property to start diversifying your portfolio!