Rentals are more than just properties you buy and let people use for a fee. Residential rentals are your tenant’s homes — spaces that allow them to recharge and enjoy their privacy in the best way possible. Don’t get us wrong. This may sound like you need to put out a luxurious rental, but it isn’t. A simple home — undecorated, bland, with no unique features — can do much more for your tenant and yourself with the right management approach and maintenance.
But before you dive into the post-purchase scenarios, let’s first brush through the things that you need to consider when you want to buy a property to turn into a rental.
Location
“Location is key”. You’ve probably heard of this cliché a thousand times before, but with the emergence of so many types of rentals today, the location factor sometimes only comes second after deciding what rental strategy you want to implement.
For some people, long-term rentals are the best because it reduces the hassle of finding tenants over and over, and it lessens the possibility of getting very unruly tenants. While for others, short-term rentals are the best because they have a greater earning potential, can qualify for the 14-Day Rule Tax Deduction, and have greater usage flexibility. If you still don’t have candidate properties in mind, you can start by deciding whether you want to invest in a short-term or long-term rental. Otherwise, you can consider location first, then evaluate what rental strategy will be the most profitable for that area.
Location is important because it dictates the supply and demand and the future value of your property. Even if you are hoping that your rental will last forever, the market situation and your life situation may push you to sell the property in the future. So it still has to have value in the future (scroll down to learn more about future value).
Market Rental Prices
Rental prices are influenced by location. The nearer your rental is to central business districts, the higher your rental rate will be. This is partly because property values are always higher if the land your property is standing on is in high demand. Your rental price will have to be on par with how much you bought the property for. For example, if there are two houses — one is P156,000, while the other is P330,500 — you cannot just implement the same rental fee for the two houses. Otherwise, you’re not going to be able to get your ROI in the soonest time possible.
Based on the 2021 HUD Fair Market Rent alone, rental prices range from $632 for a studio unit to $1,229 for a 4-bedroom house. You can check out rentdata.org for historical fair market rents throughout the Peach State. On a brighter note, since you’ll be renting out private property, you have more power to control/set your rental price.
But of course, it would be best if your price will still be based on empirical data. For example, if you’re planning on buying an apartment to rent out in Atlanta, so far, the average 2021 rent for a 1-bedroom space unit is $1,402.
Supply and Demand
The ideal situation for you would be a low supply of rental properties in your preferred area and a high demand. As of this writing, rental prices in major cities are climbing due to supply shortages and high demand. The economy is slowly recovering from the Coronavirus pandemic, and people are starting to go back to the cities.
However, considering that the market is constantly fluctuating, you’ll have to be flexible with your strategies and adapt to what your target market is looking for. For example, while some properties are established for long-term tenants, they are also open to transients if they don’t find a long-term tenant.
You can check out this study published in the International Journal of Contemporary Hospitality Management to help you decide between implementing a short-term rental versus a long-term rental in your area of interest.
Maintenance Costs
One of the great things about long-term tenants is that you’ll have help maintaining the property. Likewise, you won’t have to worry about different people putting your rental at risk because you only have to deal with one tenant. Hence, short-term rentals generally have higher maintenance costs than long-term rentals. In a short-term rental, you’ll have to scan, clean, and fix your property every time a guest comes and goes.
This can be addressed, though. Plenty of short-term rentals like the ones you see on Airbnb require a separate maintenance fee. This is on top of damage costs which are only charged if the tenant did cause considerable damage to the property.
If you want to buy a fixer-upper and flip it to a rental, make sure that all the basic building codes for safety are met before you start welcoming guests. Your contractor should be able to help you plan this.
Future Value
While property values are rising, old and unmaintained houses will rarely enjoy the same fate. If the property you are buying is relatively old, with no proper maintenance, and built on a remote, uninteresting area, you may need to step up on renovations to add more value.
If you need help finding a great rental property that would suit both your current situation and future dreams, connect with us at HomeSold GA. We’ve got properties all around the state, and we can help you jumpstart your rental business.