Not every investment property is a good investment property. There are a few key things you should look for when buying investment real estate in Kansas City.In our latest post, we provide 6 signs of a good investment rental property in Kansas City.
Are you looking for investment real estate in Kansas City? Do you know what you’re looking for? There are a few factors that set apart a good investment from a poor one. Below are a few of the big signs you definitely don’t want to miss when looking at an investment rental property.
#1 – Low Vacancy Rates
Take a deep hard look at what the rental market in your area in your area is doing. There shouldn’t be too many properties available and there definitely shouldn’t be too many that are all clustered together. If there are, it may mean that you’ll be faced with some hard competition and could have trouble finding quality renters or people who will pay what you’re asking. If there are lots of options in one area then the prices could potentially start dropping to catch the attention of a potential renter. Ideally, you want the property to be in a high-demand area. One red flag is seeing lots of apartment buildings and property managers advertising incentives to get tenants in the door. Offering a free month or rent or reduced security deposits may be a sign they are having trouble good finding qualified renters and that its not a good investment rental property.
#2 – Great Neighborhood
A profitable rental will be in a high-demand area where turnover is low and tenants don’t want to leave. Look at the demographics and businesses in the area you are considering buying in. A college town might have more turnover and damages, but you might be able to keep the property rented at all times. While going to a suburban area may attract families, which typically will stay in the house longer term. Look for big chain stores in the area such as Starbucks and Whole Foods. These companies do a great amount of research to ensure they are opening their stores in quality locations. If there isn’t much in the area or if development is stagnant, the area might not be in as great of a demand. Millennials, the largest demographic of renters, prefer walkable neighborhoods, with access to public transportation.
#3 – Repairs Are Minor
Never get stuck buying a property that needs a long list of repairs. Renovation projects should be minimal and affordable. Unless you plan on completely gutting the house, don’t dig your self too deep with a property that needs lots of work. Doing this will quickly deflate your profits and cause huge amounts of frustration. The last thing you want is to sink money into a house that won’t have much or any return on investment until much further down the line. Stick to properties that only need a few cosmetic fixes. A fresh coat of paint and some new fixtures can drastically change the appearance of a house.
#4 – Excellent Cash Flow
There are a lot of financial factors to look at before buying a property. Do a complete cash flow analysis on the property or hire a professional to do this for you. The previous owner should be able to provide you with financial statistics for as long as they have owned the property. There are a few equations commonly used by investors to ensure the property is a good value. The Gross Rent Multiplier, or GRM, is the ratio of the amount paid for an investment to its monthly rental income before paying for any expenses. The GRM will determine how long it will take for the property to pay for itself, and for you to be clearing much larger profits. Another equation commonly used is the 1% rule. This rule states that a property should rent out each month for at least 1% of the price you paid for it. Yet another common equation is the 70% rule which states an investor should never pay more than 70% of the homes ARV, or After Repair Value.
#5 – Resale Value
Any good investment rental property should be able to hold its resell value. There might be a time somewhere down the road when you want to sell the property and move on. Maybe you want to invest the money elsewhere, or maybe it will stop performing as well as you need it to. Either way, you shouldn’t have to worry that you will struggle to find a buyer. Even if you are renting out the house, be sure it is in good shape, and won’t cost a fortune in repairs if you decide to sell in the future.
#6 – Market Info
Before buying an investment property in the Kansas City area, you will want to fully understand the local market. Research the population growth over time. If people are consistently moving to the area, the demand for rental properties will increase. Are there new jobs coming to the area which can support the consistent population growth? You can find much of this information online at the US Department of Labor’s website. You should also contact your city planner or visit their website to learn about future development in the area. If new shopping centers or parks are being developed, this is bound to attract more people to the neighborhood, thus putting your property in greater demand.
Do you feel that you now know at least 6 Signs of a Good Investment Rental Property In Kansas City ?