From the initial choice to really purchasing your first rental property as an investment, there's plenty of planning and work involved. Buying rental property should be approached with a lot of circumspection and forethought so as to get optimal returns and avoid a serious financial setback resulting from a wrongly-chosen property. There are a number of aspects to be considered when looking for an income-generating property.
You should begin hunting for your rental investment property with an unbiased approach to areas and all of the properties in your investing range. Let us have a look at the top ten things you need to think about when trying to find the best rental property:
Area: The quality of the location in which you purchase a rental property will determine the kinds of renters you will find, and how frequently you may face vacancies. For instance, in case you purchase the home in an area near a university, the odds are that your pool of expected renters will largely consist of students. You may be faced with frequent vacancies during the times when students generally return home for the holidays. Also, there would be a higher churn of tenants, when ideally you want long-term leases.
Examine the location and project for existing and planned public parks, shopping malls, gymnasiums, cineplexes, public transportation stops and all the other factors that would conceivably entice tenants. You can peruse developers' project brochures and also do online research to establish the saturation of such facilities in a neighbourhood.
You also need to know what new developments are coming in, and what has been zoned for special purposes by the local municipality. You are looking for a region with excellent growth prospects where schools, business parks, shopping malls and entertainment zones are either already in place or planned. Simultaneously, be wary of any new developments which could reduce the value of surrounding properties, such as by causing the loss of green open spaces or public parking facilities.
- Property Taxes: Property taxes aren't standard across the board and, as an investor intending to earn money from rent, you would like to know about how much you'll be losing to taxes. High property taxes are obviously justified in very good areas which are superlatively connected. Such areas also usually attract long-term renters. Locations in upcoming growth corridors should be preferred.
- Educational institutes: Your tenants may be a family with kids, or intending to have kids, who would prefer areas which are near to one or more good schools. The presence of quality schools in the area you invest in will positively impact the worth of your investment. Remember, the total worth of your rental property comes into play when you finally sell it, even though you'll be mainly concerned with earning monthly rentals in the interim.
- Job Market: Areas with growing employment opportunities have a tendency to draw more people – meaning more renters. Obviously, the most desirable situation for you would be to own a rental property near to or well-connected to an established or rapidly growing workplace hub with reputable companies active and generating jobs there.
- Project Quality: Today, rental home seekers prefer projects which add value to their lifestyle. Good projects with the best lifestyle deliverables may be out of their purchasing reach, but they expect to get such facilities in a rental home. Projects with all the amenities like garden, children’s play area, sitting area for elders, reliable security and professionally managed maintenance are always preferred by families hunting for rental flats. The ambience inside the complex is very important to them.
- Rents: You should be aware of what the typical rent in the region is. Make sure you find out enough about the region to judge where it is headed in the following five years. Property taxes may rise and even if you can afford them now, significant developments in the area which increase property taxes may make them less affordable.
When you've narrowed down the right location, look for a property that can potentially yield you steady and growing rental income as well as appreciation on the capital value of the home. Consider properties which are within your budget and slightly above it as well. The slightly costlier options can be paid for by some bank leveraging, and developers may be open to negotiating the price.
Also, remember that buying property can become even more desirable with some modifications and cosmetic uplifts, which will attract tenants who are willing to pay higher rents. Such changes to the property will also serve the purpose of increasing the sale value of the home in case you want to put it on the market after some years of good rental income.
Every state and every city has areas which have both suitable and excellent properties when it comes to rental potential. In Pune, areas like Undri, Kothrud and Ambegaon are excellent locations for rental properties because of the consistently high demand. In Mumbai, the more cost-effective locations in Navi Mumbai such as Koparkhairne, Airoli and Ulwe are very good options, though property prices are naturally higher there.
Do your research well and ensure that you have your finances in place if and when a very good option comes up. Remember, real estate investing does not begin with purchasing a rental property - it starts with creating the finances where you can purchase a rental property.
About the Author:
Kishor Pate, Chairman & Managing Director of Amit Enterprises Housing Ltd. is the driving force behind one of the most successful real estate development firms in Pune and beyond. Apart from its signature luxury projects like Montecito in Sahakar Nagar and other premium gated townships, AEHL has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri and the Mediterranean-style township Astonia Royale in Ambegaon.