Buying income properties can truly be a challenging business. There is a lot to know before choosing a potential Lynchburg single-family rental home, and everything is not easy and obvious to first-time investors. While the price of the property is a key piece of information to have, it is not the most important one. Actually, the top four features to watch for in a great income property are property taxes, rental rates, future development, and vacancies. By doing as much research and getting together as much information as you can in these four areas, you can better narrow your property search down to get the most profitable options.
The cost of an income property begins with the sales price but certainly doesn’t end there. As professional investors understand very well, ongoing expenses such as property taxes do have an important effect on your rental home’s long-term profitability. Property taxes vary widely from town to town, and sometimes even neighborhood to neighborhood. It is crucial to have accurate property tax numbers for the exact property you want to buy before making your offer. Most municipalities have an assessment office with tax information on file, with more and more towns now offering this information online. You will have to similarly check local news carefully for any hints of a property tax increase in the near future. Even supposing high property taxes are not always a bad thing, especially in a location that is well-known to capture long-term tenants, they could equally be a signal of a town in serious trouble.
Knowing how property taxes will affect your investment is an important part of deciding on your next property, however, so also is an in-depth knowledge of rental rates in your area. A thorough marketing analysis of the area where you’ve decided to invest in could get you to know what the average rental rate is. This rate, in turn, can lead and help you to assess whether your expected rate will cover your costs, including the mortgage payment, taxes, maintenance, and all that stuff. As in the case of property taxes, you’ll have to attempt and gauge where rental rates in the neighborhood may be headed in the future. Looking at the recent past may help, as will staying on top of local development projects or shifts in demographics.
As you collect your data on property taxes and rental rates, don’t miss to research any plans for future development in the area. Usually, the municipal planning department in your area will have helpful information on any new zoning and development plans. It is indeed a good plan to look around the neighborhood and nearby areas for signs of construction. If a lot of building is underway, that may be a sign of an area experiencing strong growth. It’s furthermore important to be updated on some other new housing developments, which could potentially lower property values for existing homes around. New housing could also wind up being your competition, now with there having more and more investors and even builders putting brand new homes on the rental market.
And finally, the fourth critical aspect to put to use when reaching for a decision on which investment properties to buy is the number of listings and vacancies in your desired area. A district with a high number of rental homes is not necessarily a sign of trouble, as long as the number of vacancies in that same area is relatively low. On the occasion that you are seeing unusually high numbers of unrented properties, though, that can be a hint of a neighborhood in decline. The greater the number of vacancies there are, the lower rents will go as landlords compete for tenants. You may, in the end, be losing money if your rental rate dips below your ongoing expenses.
While doing research on every potential income property is a lot of work, Real Property Management Cairn can help lighten your load. We offer free rental property analyses for investors, which can help you more easily identify whether the income property you want to buy is a profitable option. Contact us online or call us at 434-215-3028 to learn more!
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