So you are thinking about investing in rental properties but not exactly sure where to begin.
What makes a great rental property anyway?
Finding the right investment property can be overwhelming, especially for first-time landlords.
Buying an investment property in Maryland is not the same as flipping a house or even buying a home.
While some aspects may be the similar to buying your first home, there are other important factors to consider when purchasing a rental property.
Costs to Consider
Most first-time rental property investors are surprised by the hidden costs associated with becoming a landlord. When searching for your first investment property, take into consideration other costs than just the property’s price tag.
When calculating the amount you should charge in rent, do not forget to cover the cost of property taxes, which vary throughout Maryland. If the investment property you are considering is in a county with hefty taxes, but does not have the potential to attract high value renters, then it is not worth the investment.
Tenant Search & Vacancy Allowance
Marketing your rental property to the right tenants is not always as easy as listing it on Craigslist. Finding and screening for high value tenants can be a costly process to do on your own. Also, the longer it takes to lease a property, the higher the cost becomes of owning it.
You can avoid these costs by working with a property management company. A great property manager will offer services like property marketing and tenant screening.
Some states require all rental properties to be registered. For example, certain counties in Maryland have recently passed laws that require a licensed inspector to examine the property before it can be legally leased out.
Even if your state does not require rental registration, you still may be responsible for other costs and fees, such as lead inspections or association fees.
Determining the Right Neighborhood for Your Investment
Finding the right neighborhood in Maryland is the first step to finding the right rental property. The quality of the neighborhood is going to determine the quality of your tenants, your potential turn-over rate and your rent level. To attract high value tenants, look at the following features of the neighborhood:
Look for neighborhoods within reputable school districts. Great schools attract long-term tenants because parents prefer not to bounce their kids from school to school by moving.
Montgomery County and Howard County both offer many reputable schooling options, making them prime locations to rent to families.
If the neighborhood has been hit harder than most during the previous recession, it might not be the best investment. You need a neighborhood that has a low unemployment rate or a high job growth rate.
On the other hand, you may want to look at investing in a neighborhood that has a reasonable commute to a larger city. For example, if you are a landlord in Maryland looking to attract high value renters who work in D.C., you should consider some of the neighborhoods in Prince George’s County that have been recognized by top media outlets.
If you want to invest in one of these neighborhoods, but your commute is unreasonable, or don’t have the time, you can still purchase the property and know it will be in good hands. Simply hire a reputable property management company in Prince George’s County to manage your income property.
When researching neighborhoods, be sure to look at the crime rate. Buying a rental property in a neighborhood with a high crime rate comes with additional costs, such as the cost of installing alarm systems and/or security bars to windows. You are also more likely to attract low value tenants. These tenants are more prone to do damage to the property, have a higher rate of delinquency and a higher turnover rate.
Amenities and Development Plans
Look for a neighborhood that will provide your tenants with ample amenities. A community close to cultural centers, shopping and entertainment outlets are best, but also be aware of any future development plans. The perfect neighborhood you find today might become an example of urban sprawl in the future. Increased development can also lead to problematic parking situations for your tenants. One of the most undervalued criteria for potential renters is available parking. Please keep this in mind when you are searching for your investment property.
Finding the Right Investment Property
When selecting the right physical property, here are some basics to keep in mind:
Unlike when flipping real estate, curb appeal is not necessarily a selling point when investing in a rental property. Yes, you want your property to look attractive, but keep in mind that the more complex the structure and/or landscaping design, the higher the cost of remodeling and keeping the property looking up to date.
When investing in a rental property, you should value adaptability over aesthetics. Can the property easily be remodeled to fit changing styles? If a tenant causes damage, how easily and cheaply can it be repaired?
Age & Condition
Again, investing in a rental property is not like flipping houses. The bargain fixer-upper you selected might cost you more in the long run than the newer property you passed over. Depending on your state’s tenant laws, an older property will cost even more when converted to a rental property because it will need additional remodeling to bring it up to code.
If you are not comfortable evaluating a prospective property yourself, hire a building inspector/general contractor to help evaluate the cost. It is a small investment that could save you from a money pit.
Air conditioners will break. Pipes will leak. Emergency repairs will happen. You can keep the cost of these repairs low by ensuring that the property has easy access to its utility systems and they have been properly maintained by the previous owner. Making sure that the HVAC systems have the air filters changed every 6 months is very important. In multi-family buildings, Bay Management Group checks on every multi-family unit during the spring and fall to do preventative maintenance on the HVAC systems.
Similarly, hiring a property management company would also help keep the cost of emergency repairs down. It would also give you greater peace of mind, knowing that you won’t be the one woken up at 3 a.m. because a water heater broke. The right property management company will provide 24/7 emergency repair service for its clients.
Having the Right Property Management Partner
Becoming a landlord isn’t easy, and becoming a profitable one is even harder. Yet, hiring a property management company can relieve some of the stress and costs of owning rental properties.
The best companies will work with you from the start by recommending inspectors, and continue to support you tenant after tenant with rent collection, evictions and monthly inspections.
Still have questions? No problem.
As the leaders of property management in Prince George’s County, Bay Property Management Group is happy to walk you through all of the steps involved in your next investment. Contact us online or call the office today to speak with an experienced property manager.