Real estate can be a great investment. With the value of land continuing to increase and more millennials choosing to rent instead of buy, owning a rental property can be a successful investment strategy. If you’re going about this for the first time, there’s a lot to consider before deciding if this is the right approach for you and here are some helpful tips on where to start.
Decide on your goals
Before you do anything else, do a little soul-searching and ask yourself why you’re considering owning a rental property in the first place. Do you plan to manage it full-time? Are you relying on the property for income? What are your long-term plans for the home? Do you want to live in the same area as the property? Answering these questions will help you decide where and what type of property you want to invest in.
Decide how you will manage your rental
This may be something you addressed when thinking about your goals, but it’s important to spend time deciding if owning a rental property is something you plan to manage yourself or if you want to hire a professional. Think about how much time you can devote to everything that goes into it and start researching some property management companies to find out what their costs are and whether that might be a better option for your lifestyle. (TIP: Find out the questions you should ask before hiring a property manager)
Determine your budget
You don’t have to afford a mansion to own a rental property, but you should have enough funds set aside so the purchase of a property won’t leave you scraping for quarters each month. Consider the big picture when calculating your budget, knowing that the sale price isn’t the only number to look out for. Take into account property taxes, insurance, repairs and improvements, and loss of rents for any months the property may sit empty between tenants.
Get educated on the market
Once you’ve decided to buy a rental property, you need to decide where to buy your rental property. Picking a place that has a high vacancy rate is probably not going to yield a high rental income. Spend some time talking with local brokers and property managers and looking through online rental listings to understand the average rent price, number of listings available, and how long the listings sit on the market. This will help give you a sense of whether the rental market is strong or not. According to Cheri Smith and Molly Brundage from BrundageSmith Real Estate Brokers, the Bend real estate market has seen home values increase steadily by roughly 11% each year over the past five years. They went on further to say:
“We predict that trend to continue as inventory remains tight but buyer demand increases. While we experience a seasonal / holiday slowdown in November and December, a greater percentage of homes on the market are sold in February - April more than any other time of year.”
- Cheri Smith, Broker / Molly Brundage, Principal Broker
Tour properties, then more properties, then more properties
Next, the fun part-start touring some homes! Talk to your broker about what you’re looking for and have them help refine your search. Despite the excitement you may feel when you’ve found “the perfect one”, try and view as many homes as you can before you take anything further. If you can, visit the home multiple times and during different parts of the day and week to get a feel for the neighborhood.
Get a rental analysis
When you’ve found some properties that peak your interest, it’s time to get an idea of what they may make in rent. This is done by looking at other similar homes in that area and determining an average rent price. When comparing properties, you should place high importance on location (the closer the comparable homes the better), the similarities in size (number of bedrooms / bathrooms and square footage), and any other factors that may be relevant to rent demand, such as garage, backyard, home office or appliances. All of these factors can help you get an idea of how much the home is worth in rent. Always keep in mind these numbers are estimates and that seasonality plus housing market trends can impact price. (TIP: You can ask us for a rental analysis anytime! We love talking to you about your potential property and helping you get an estimate of rent, and we do it for free!)
It’s all up to you!
You’ve thought it through and done your homework, now it’s time to decide if you want to bite the bullet and become a rental property owner. Hopefully you have found this helpful and you have a better idea of where to start if you’re considering real estate investing, but if you have questions about the rental process, rental market, or anything else, we would love to help you. No question is a bad one and we want to be a resource for you, so please feel free to contact us at any point in your journey.
Special thanks to the local brokers who contributed to our post, Cheri Smith and Molly Brundage with BrundageSmith. If you would like to get in touch with them to find out more about the real estate market, their contact information is below:
Cheri Smith
csmith@total-property.com
541-788-8997
Molly Brundage
mbrundage@total-property.com
541-280-9066