Building Your Dreams a Home
Apara Leekha
312 967 6732312 967 6732

Thinking about buying your first rental property?

The decision to become a landlord is certainly exciting – the search for a property, marketing for a tenant and potential to bring in money every month.

But before you go buying the first empty house you see – or worse, a house you didn’t even look at – know that your investment is better made when you’ve carefully run the numbers.

Real estate investment professionals use a number of financial tools to make sound investment decisions, most commonly “cap rates,” or the annual return expected on an investment. In contrast, people who are just starting to look for a single-family home or other residential property in which to invest, too often rely on gut instinct or emotion to drive their purchase decisions. They may simply love the property and hope that it will someday appreciate for a sizeable return. But even if a property appreciates (which isn’t always a given), will it appreciate enough to cover the annual costs to hold the property? The experts don’t invest for appreciation alone, so why should you?
 

Every investment property requires a careful assessment of the value of the property, amount of debt you’ll take on, expected income and other operating costs. Those property-specific numbers are also dependent on the local rental industry.

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Here are four things to consider as you look for the right rental property.

Find the market and submarket

A property in your neighborhood may seem like the most convenient investment option, but that doesn’t mean it’ll be worth your time and money. You first need to identify the best market for your investment, plus the submarkets – often broken down into neighborhoods – where a rental property will be most fruitful.

 

Weigh property class options

As you identify the submarket that will yield the most demand among renters, also consider the quality of the property you’d like to own based on what you can afford and what renters flock to.

Property classes are typically broken into three categories: A, B and C. Properties in Class A will be the top quality in that market, typically new and higher priced. Class B properties tend to be a bit older but well-maintained. Class C properties are older still, often in need of renovations and repairs and located outside the prime real estate locations.

You may be better off focusing your investment toward a Class B or C property, because while there may be some required work on the property, you avoid narrowing the pool of potential renters with an expensive rental rate.

 

Target Renters

Think of your rental market or target tenants before you purchase! Properties can sit vacant for extended periods of time if there is little demand in your target area. When it comes to identifying the most likely renter, it helps to be familiar with the area.  It’s important to have a solid grasp on the typical renter in a neighborhood, or at least work with someone who does. 

 

Plan for the worst-case scenario

Whether it’s a recession that hits or even an increase in homeownership rates, there’s a possibility you’ll have to lower rents at some point to attract renters. If the city or neighborhood you live in undergoes serious changes, your rental property may even sit vacant for months.

It’s important to know how long you’d be able to afford fronting the costs of a vacant rental space or how low you could make rental rates before you’re no longer profiting.

As you weigh the potential profitability of a rental property, include the possible scenarios of a plateau in rental rates, decline in demand and the occasional big-ticket repair that could take money out of the bank rather than putting money in. They’re not the numbers you want to think about when you picture yourself as a landlord, but they’re the numbers that can keep you from taking on a bad investment.

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About Aparaha

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Apara Leekha

apara.leekha@gmail.com

312-248-6661312-248-6661 main

312 967 6732312 967 6732 office

Property Economics Inc

850 E Higgins Rd, Ste 125G Schaumburg, IL 60173

My Past Sales

Latest Real Estate

49 Stanton Court, Unit Number A1

Schaumburg, IL

  • 3 Beds
  • 2 Baths
  • 1,200 sq ft
  • -- lot
  • $1,825

602 Stone Circle Court, Unit Number V2

Schaumburg, IL

  • 2 Beds
  • 2 Baths
  • -- sq ft
  • -- lot
  • $1,595

1835 Cannon Court

Schaumburg, IL

  • 3 Beds
  • 2 Baths
  • 1,268 sq ft
  • 8,097 lot
  • $289,900

161 Bright Ridge Drive

Schaumburg, IL

  • 2 Beds
  • 2 Baths
  • 1,100 sq ft
  • -- lot
  • $159,000