Licensed Louisiana Realtor
504-231-2004
19th Dec 2017 | by: Jacob Freedman

LOCATION~LOCATION~LOCATION

 

  • Rental Potential

          When investing in a property, it is important to gauge immediate return on investment as well as future gains. Realtors have access to many market statistics that are more difficult to find on your own. One popular rule of thumb is the “10% rule.” This rule does not tell the whole story but can help narrow the homes that you should investigate further. To see if a property adheres to this 10% guideline you must take the current annual rent and divide it by the purchase price for the property. If this gives you a number equal to or greater than 10%, it is a strong potential candidate and worthy of further research.

          A Realtor can help you look at comparable rental listings to get a sense of what you could reasonably charge for rent. To facilitate a speedy return on investment, one must find tenants quickly. There are a few ways to better understand the rental market in an area. Most importantly, one should find an experienced Realtor who can assess the market data for them. One must also look at the “days on market” or DOM of potential comparable rental listings; the lower the DOM, the better. Also, if landlords are offering concessions to tenants (such as a free month of rent or lower deposits), this could be a sign that the rental market is slow in that area (beware!).

          Similarly, the DOM on properties for sale can also indicate how “hot” a market is. If homes are selling fast in an area, it looks good for renting your property and it will help when it comes time to sell down the line. The days on market, the current rents, and the rate of return on an investment (10% rule), will help determine which properties have great rental potential.  

 

  • Flood Zone

          It is difficult to gain equity in a home that is underwater! Be sure to check with your Realtor or online to make sure you are buying in an area that is levee protected, or on relatively high ground. This is of the utmost importance in New Orleans. Higher ground equals higher property values.

 

  • Nearby Hotspots and Walkability of the Neighborhood

          Nearby commercial areas and retail shops can very much improve the value of a home, especially in the long-term. Finding the right hotspots that are still on the rise is also better for gaining equity over time. This makes me think of the “Freret Street Neighborhood” in New Orleans. Freret Street is a budding strip of shops, bars, and restaurants. The area is highly walkable and has character, but does not yet have the higher prices of the area around Magazine Street, for example. Finding a home with a walkable neighborhood will increase the value for both tenants and potential buyers.

 

  • Schools and Universities

          Finding a home that is near schools and universities can provide a reliable source of tenants and thus, solid rental income. For example, there is a very hot rental market near Loyola and Tulane University in Uptown (get statistics on both schools at GreatSchools.org). Schools and universities, plus professional students lead to a solid long-term rental market.

 

  • Gourmet Groceries

          The numbers will not tell you everything. An investment property near gourmet groceries such as Whole Foods will be attractive to tenants and can increase the overall amount of rent your property pulls in. Gourmet groceries and other stores that sell luxury goods can also serve as a general sign that a neighborhood is on the rise.

 

THE PROPERTY ITSELF

 

  • The Purchase Price

          The purchase price is very different than the listing price. One can list their home for whatever they want; however a home is only worth what someone is willing to pay for it. Finding the right Realtor is very important in this regard. Having a strong buyer’s agent will help to save you money on the purchase price. The Realtor will advise you to offer what the house is worth. The purchase price is perhaps one of the most important aspects of a great investment property. Finding a property with room to grow above the purchase price is the key to gaining equity.

 

  • Number of Units and Bedrooms

          A greater number of units and bedrooms generally means you can rent to more people and more tenants equals more rent. However, a savvy investor must also be careful to not have too many bedrooms and units. Putting a larger number of tenants too close together can lead to overcrowding and risks diminishing the rent. One must be careful to balance the number of units and bedrooms to maximize return on investment.

 

  • Car Storage/Off Street Parking

          This is HUGE in New Orleans. Street parking can be difficult and risky, depending on the neighborhood. Finding an investment property with yard space to install a driveway (or a property with an existing driveway/off-street parking) can greatly increase appeal to prospective tenants, and thus the greater rent an owner may charge.

 

  • Inspection Report

          The importance of acquiring a thorough home inspection report can not be overstated. An experienced Realtor will have no problem finding the ideal home inspectors to hire. Without a thorough inspection report, even the best investor will be unaware of the latent defects in a property. There is much more to the long-term health of a property than meets the eye. Inspection reports also give a home buyer legitimacy in requesting that the seller pay for repairs or help to lower the purchase price.

 

  • Repairs/Maintenance/Renovation

          Knowledge of the repairs and regular maintenance needed will stem from a thorough home inspection report. It is crucial to assess future repairs and maintenance that the property will require. Repair expenses and routine maintenance costs must be factored into your decision for the value of the property.

          Renovations can be a double-edged sword. Renovations can very much improve the value of a property. However, if one invests in the wrong aspects of a home, they risk investing more money than they gain in value. One should always consult a Realtor before hiring a contractor or investing money in upgrades to a home.

          Generally, the best aspects of a property to invest in are: painting, renovating/updating kitchens and bathrooms, flooring, and light fixtures/new door hardware. Painting is inexpensive and will make a home look fresh and clean. Kitchens and bathrooms are often the most remembered aspect of a home (and the appliances are very important!). Flooring in general should be consistent throughout the home and will make the home seem much more spacious. Lastly, new light fixtures and fresh door hardware are other inexpensive ways to make a home appear more updated and well cared for.

 

THE BEST TENANTS

 

  • Cleanliness

          Finding tenants who will take good care of your property is very important to this long term financial investment. It will make the turnover between tenants quicker and less costly. Similarly, it will help ensure your investment is secure. Negligence and deferring regular maintenance over the years will add up and ultimately hurt the property value. Finding tenants who have the capacity and desire to keep your home clean and well tended is crucial.

 

  • Credit Checks

          If your tenant is not able to afford the monthly rent, you will not get paid! It is recommended to run credit checks on all rental applicants. Most real estate brokerages require credit checks with their rental applications as well as performing a criminal background check and a search for previous evictions on file.

 

  • Forming Relationships with Tenants

          It is extremely beneficial to have symbiotic owner-tenant relations. A tenant who trusts and respects their landlord will be much more likely to take good care of the property. Many “nightmare” tenant situations could have been avoided through open communication between tenants and their landlord.

 

  • Lease Agreement

          A well-designed lease agreement protects both the tenants and the landlord. It lays out the rules for both parties that are legally binding. Having a written lease provides certainty and clarity for both parties on all lease terms. Both parties should be sure to go over their lease agreement with a Realtor or an attorney to ensure that all sections are agreeable.

          Auto-renewal clauses, late charges for rent, termination, who pays for utilities, rules and regulations (pets, noise, etc.), parking, pest control, who is responsible for repairs, the security deposit, and when the landlord can enter the property are all examples of very important items to look out for on a lease. Lease agreements are often referred to as “standard.” However, even when dealing with a “standard lease” it is important to read it thoroughly. An improperly or poorly designed lease can leave both parties open to undue liability.

 

  • Security Deposits

          Security deposits are a powerful tool to help protect a landlord. When dealing with a rental agreement, a security deposit is a lump sum of money paid upfront by your tenant before their move-in date. A security deposit provides a landlord with assurance that if their tenant defaults on rent or damages the property, the landlord can use the money to recoup the lost rental income or fix the damage. There must be certain rules in the lease agreement to be sure that the security deposit is handled properly. As long as the tenant abides by the terms of the signed lease agreement, this deposit should be returned to the tenant when the tenant has vacated the property. If the tenant does not follow the terms of the lease agreement, the landlord must provide an itemized list of damages to be paid out of the security deposit. Reasons to keep the security deposit often include: damage to the property, early termination of the lease, nonpayment of rent, excessive cleaning costs, and unpaid utilities.

 

If you want more in-depth advice and counsel, contact Chris Smith at (504) 231-2004 or RealtorChrisSmith@gmail.com.

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