If you're like us, you love any and all house shows on channels like HGTV and the DIY network! One of these shows is called "Income Property". In this show, people learn how to buy and improve a property with income-producing potential. Owning a rental property is a wonderful long-term investment and can earn you some extra cash each month! There are many important factors in buying a property that will produce passive income.
When looking for an income property, location is crucial for several reasons. One has to do with supply and demand. When searching the market, it is best to find a neighborhood that does not already have a lot of rental properties. If your property is one of the few available, you have a better chance of leasing it. To buy a house in a neighborhood with lots of rental properties is to add another property to an already saturated market. Another location factor you should consider is the growth of a particular area. If a city expects a large influx of businesses, which will bring employees and their families, that may be a good place to buy in anticipation of the increased demand for housing! For example, North Dallas is expecting many people to come to the area with State Farm and Toyota.
Before you buy a property, it is important to find out if it has income potential. Look at the available comparables. The comparables will tell you what other properties have leased for in that area, and this will give you an idea of what your property will rent for! Also, for you to pocket any profit each month, you will need to be able to rent the property for an amount that will cover your expenses. Your expenses will be your principal, interest, taxes and insurance. If the rent amount will not cover those, you will lose money rather than make it. If your rent covers those and some, however, you will be making a profit each month with someone else covering you mortgage!
Reno and Resale
One last factor you may want to consider with your rental property is the amount of work that it needs to be livable. Some properties only need paint while others need much more work! There are positives and negatives to buying fixer upper properties. The positive can be that you could get a good price if other buyers are scared away by the amount of work needed! However, each day you spend fixing up a property is a day you are not profiting on your investment. Also, if and when you want to sell the property, you want to be able to make a profit. If you buy the house below market value, you could still make a profit after factoring in the amount spent on improvements. If the house is bought at list price or above list price, however, you could lose your profit margin by spending money updating it.
Rental properties can be a great investment. Texas, and the DFW area especially, is experiencing lots of growth and the real estate opportunities are endless! Taking the jump into owning rental properties can be intimidating but very rewarding. Sister Sell Realty has lots of experience in buying, leasing, and managing income properties. Ask us about finding your income property and be sure to tune in to the DIY network to watch "Income Property" on Thursdays at 9 p.m. Central!