How to Spot A Home with Investment Potential

Buying an investment property isn’t quite the same as searching for a permanent home. If you’re looking for a home for yourself, chances are you’re looking for something out in the suburbs around a good school district for your children. However, investment properties don’t typically work the same way. The typical renter is in their 20s – and, what do people in their 20s want? They want to be within walking distance of restaurants, shops, nightlife, and the local grocery store. In other words, they want to be where the action is; they want to be near the heart of a fun and energetic city. These places are usually too expensive for 20-year-olds to purchase a home, so what will they be doing? Oh, that’s right, they’ll be renting! So, if you think you’re ready to take on the challenge of being a landlord, here are several ways to spot a home with investment potential:

Colonial brick house with beautifully landscaped front yard and mature oak trees

Determine Your Audience – What group of individuals do you want to rent your investment property? Typically, people looking for rental homes are in their 20s. Not only do they not have enough money to purchase a home of their own, but they are also looking for the convenience that comes with a rental property. This group of individuals, those in their 20s, should be your target audience.

Urban Setting – As a young person in the working world, it’s fun to live near the heart of a large city. Also, cities provide individuals with the most job opportunity and potential workplace growth. As an investor, it is important to look for an investment property within proximity to a city that offers both of these opportunities to its tenants. An investment property in this type of area may increase your likelihood of having the property rented.

Location, Location, Location – Where does your audience want to live? If you’re targeting individuals in their 20s, consider looking for a property in an area that has shops, restaurants, and grocery stores. These locations are extremely appealing to the younger generations!

Lots of Bedrooms – Single-working individuals typically rent downtown rental properties. With this in mind, choose a property that has several bedrooms for you to rent out all at once. This may optimize your money-making profit.

Make Sure You Can Rent – Make certain zoning laws and the homeowner’s association allow renting before you purchase the home!

Math Always Wins – Before buying a property with the intent of renting it out do the math! According to Trulia, here are a couple of rules of thumb for purchasing a rental property:

  • The 1% rule: If the rent is 1% of the sale price, it is worth looking at!
  • The 50% rule: “You want a mortgage payment (not including taxes and insurance) to be less than 50% of the rent! Consider

The Expenses – Expenses for a property may vary, but here is a list of some of the average costs you will encounter with a rental property:

  • Mortgage Payment
  • Property Taxes
  • Homeowners’ Insurance
  • Property Management
  • Homeowner’ Association Fee
  • Vacancy Rate
  • Repairs

There is a lot to consider when looking for a rental property! If you have any questions, our team at TALK Property Management is always here to help you! Give us a call anytime with questions about the Austin investment market!