- Buyers expect agents to answer specific questions about the profitability of a potential rental property and how it should be managed.
- Rental properties are durable and require little maintenance; the fancy features of a buyer’s dream house will not generate extra rental income.
- Property management will eat up 5 to 10 percent of the rental income, compared to the time investment of a self-managed rental.
As the rental market makes headlines for high rates, low vacancies and competitive availability, it’s only natural that savvy investors will start to consider residential real estate as a lucrative option for their portfolio.
Real estate agents can capitalize on this interest by arming themselves with answers to common questions a new investor will have about purchasing a rental property.
The three main things to consider when evaluating a rental property are:
1. The local rental market
This may seem obvious, but not just any property can become a rental.
Help your buyer set realistic expectations about markets that would make a profitable rental and give them tools to evaluate vacancy rates and the local market rate.
Talk to local property management companies and rental housing associations to get an idea about the “state of the rental market” for a particular area.
2. The property
When showing potential investment properties to your clients, remind them that a rental property will have different desirable features than a home they would want to live in.
A rental property should be simple, durable and low maintenance. While a walk-in closet may be a deal breaker for a buyer’s personal home, it will not generate a higher rental amount in an investment property.
3. The neighborhood
Evaluating a neighborhood for rentals is one area where your buyer’s personal preferences may come into play.
Is the property close to schools, public transit, restaurants, parks or city centers?
The more desirable a neighborhood, the better chances for a low turnover time and higher rent potential. Additionally, if the property is located in an homeowner’s association (HOA) , make sure they even allow rentals in the community.
Before you can rent…
Moreover, when establishing a property as a rental, there are few essential things to let your buyer know before they welcome their first renter.
Get landlord insurance
Rental property owners need to make sure they have the right insurance policy in place before they accept their first tenant.
Landlord insurance is different than standard homeowner’s insurance and offers the owner protections from financial loss, damage and liability connected to tenant-occupied homes.
Read up on landlord-tenant laws
Every rental owner must understand that federal and state laws set strict guidelines to housing providers.
Landlords must be educated on the landlord-tenant laws that cover everything from discrimination, entering the premise, handling abandoned tenant property, evictions, disclosures and lease agreements.
Ignorance is no excuse when a tenant sues you for saying a rental property is “perfect for families” in your vacancy ad. (This would violate the Federal Fair Housing Act that prohibits discrimination based on familial status.)
Advise your buyers to get familiar with the federal, local and state laws. Help them find a local attorney familiar with landlord-tenant laws to review their lease agreement and guide them through any rental actions like an eviction.
Know what’s better for you: Property management versus self-managed
Owning a rental property can quickly become a full-time job for investors that decide to do it themselves.
Property maintenance, inspections, rent collection and application processing can take up a chunk of a landlord’s time. Rental management software can help DIY landlords stay organized, and single-property owners might be able to use it for free.
Property management firms are a better option for investors who aren’t interested in being DIY landlords; they typically will charge between 5 percent to 10 percent of the monthly rent to manage a rental property.
There are tons of free resources you can point your buyer toward for how to become a first-time landlord.
Stand out to your potential buyers by offering them key insights on how to turn an investment property into a profitable rental house.