What should you look for when buying a rental property?

Suburban Las Vegas neighborhood

If your looking at today’s real estate market and want to make an investment, you’ll be joining countless other real estate investors looking to get their hands on a slice of Las Vegas real estate. Though prices are at an all time high, so are rents. As a matter of fact, according to Realtor.com, rents rose 16% from one year ago. Many investors are starting to see significant returns, especially if they purchased a rental property a few years ago.
Nonetheless, many investors are in the market now, sifting through the tight inventory, looking for that gold nugget. As with any investment though, there are a number of factors that will determine how profitable a rental property can be. Or how much expense might be associated with it. So, what factors should you consider?

Age of Property
Everyone loves the smell of a brand new car. But not everyone can always flip the bill on one. And so the used car market is a popular one. The same goes with housing. Most investors would prefer brand new housing – not because of the new house smell necessarily, but because everything is, well, brand new. All major components of the house are brand new and should have a significant life expectancy, minimizing expenses for the first few years of ownership. However, brand new homes are in high demand and typically priced higher than a resale home – though that gap has closed some. The higher price keeps many investors from buying brand new. And so, the resale market is a popular one. When looking at resale properties, what should you keep in mind? Here are a few points:

1. Are major components, such as appliances, HVAC or hot water heater nearing the end of their life expectancy? If so, keep in mind that those may fail and need replacement. Prepare for those expenses.
2. Is the home generally older, perhaps 30 years or more? Keep in mind that certain items may be needing replacement, such as the roof. The house may need some remodeling. Repairs may be common place. Are you prepared to allocate a budget for those?

Property Type

Las Vegas has an abundance of housing. There are single family homes, condominiums, town homes, mid and high rise units and multi family buildings. Have you decided what you want to own? Perhaps your budget will determine what you will be considering. For example, the median price of a single family home is higher than that of a condominium in Las Vegas. However, what other factors should you consider?

1. Many communities have homeowners associations. Each month, quarter or annually, they assess fees for maintaining a community. These fees can vary, depending on the community amenities. Are you prepared to absorb those?
2. Back to HOA’s on this point. Keep in mind that condominiums and town homes typically have HOA’s to maintain the community pool, park and perhaps gated entry. Monthly fees are used to cover that expense. However, many times those fees also cover the insurance necessary for those common areas as well as the exterior of the building, roof and some components of the building. As a result, homeowners insurance may cost less.
3. Single family properties typically need insurance for the entire dwelling and property. As a result, those costs can be higher than that of a condo or town home. On the other hand, you might find that the HOA dues are lower.

When all is said and done

In the end, you have to do a side by side comparison to see what the constant, ongoing costs will add up to. This, coupled with potential repairs, will prepare you for owning a rental property. Of course, researching what the potential rent for a property will be is necessary as well. A good property manager can be an invaluable asset in this process. This way, you can be a well prepared, savvy investor who has done their homework and knows exactly what kind of a property you are looking for.