Buying Rental Property
A lot of recent Real estate activity has been from investors eager to snap up deals Buying Rental Property.
However, as a veteran of many of these transactions, I can tell you that buying an investment property is a lot different from buying a personal residence.
When you are searching for a home for yourself, you look at not only its location, but the kind and types of amenities found in the home. We refer to this as “buying the lifestyle”. Your home is not only where you live, but a representation of your life that is projected to the public.
With investment properties, “It’s all about the money”!
To find a good investment property, here is a good plan:
Determine the type and size of the home that maximizes the amount of rent you will be able to receive on a consistent basis.
Naturally, a larger home with more bedrooms will bring more rent, but usually the price of the home is higher as well, negating the effects of any extra income. Smaller homes may be cheaper, but will probably appeal to fewer renters. This means you will receive less income and have a smaller renter-pool from which to choose.
The configuration which appeals to the largest number of renter-families is a three bedroom, 2 bath home of 1200 square feet or more with a two-car garage.
If you live in a college town, it may be a one- or two-bedroom condo. For a vacation rental, it may be a two-bedroom one bath home close to some local amenity that attracts vacationers in the first place.
But for suburban bedroom communities, it is the traditional ranch-style “three and two”.
Next, the price range. In the core of Contra Costa County (Pleasant Hill, Concord, Walnut Creek, and Clayton), we find that rental prices usually go up to around $2000 to $2200 per month before you begin to reach diminishing returns. That is, you can find higher rental prices, but they come at an increased cost which is reflected in monthly payment.
a great example of a 3 bedroom, 2 bath Pleasant Hill rental property
For example: A generic $500,000 home in Pleasant Hill will rent for approximately $2100 per month. A $650,000 home will rent for about $2400 per month, but the additional financing costs will total around $800 more per month, meaning you will need an additional $500 per month from your own pocket to cover the additional costs of this nicer house!
In my next post, we will talk about what you should look for inside a good investment property.
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