Q. I am considering purchasing a rental property. What things should I consider when looking? What makes a good rental property?
A. Having a rental property in Hawaii can be an excellent venture but you should be sure to do all your homework before purchasing. With a rental property, the ultimate goal should be to secure a tenant who will take care of the place, pay the mortgage, and leave you with a little extra money at the end of each month. So what should you be looking for when deciding to purchase a property to rent?
The first thing is affordability. You need to know what the average home prices are and the current rental rate for the area. If the numbers show you losing money each month, then it is not a viable option. It is important to factor in cost of repairs, potential increase in taxes, homeowners association dues (if applicable), and insurance.
Second is the status of the rental market for the area and the average rental rates in the neighborhood. Are there a lot of renters in the neighborhood you are looking to buy in? Are the area and neighborhood made up mainly of homeowners with a few scattered rentals? Is the property in close proximity to one of our military bases, making it attractive to military personnel? All of these factors will affect what you can command for rent and how quickly you can find a tenant.
Third are schools. If you are looking to purchase a home that will attract a family, this is a vital part of your research. Families often make decisions on where to rent and live based on both affordability and the neighborhood schools. You are going to want to check out the schools that are in the district of the home you are thinking of buying. The better the schools, the greater the applicant pool is likely to be.
Fourth is crime rate. A high crime rate in a neighborhood can be detrimental to renting a home. Fortunately, most cities have crime stats on their websites now and they break them down by the types of crimes. No area is going to be crime free, but you should look into what types of crimes are happening and their frequency.
Fifth is proximity to stores, public transportation, and highways. We all hate the rush hour commute. This can be a major factor in choosing one home over another. Being able to get to required services in close proximity to your home makes life just a little easier.
Sixth are amenities the neighborhood offers. Is the home you are buying in a community with a swimming pool or recreation center? Does it have a playground for children? Are there parks close by? The more amenities, the more attractive the home becomes.
Last is the resale value of the home. Depending on how long you plan on keeping the house, this can be an important statistic in your equation. I always recommend that investors who want to hold onto a home for a period of three to five years should look at the trends of home prices going back seven to eight years. This will give you a picture of the pre-boom, boom, and the post-boom home prices. You will have a better idea of where you would land on the wide spectrum of home prices if you need to sell.