Investing in real estate can be a very lucrative venture. Yet not every property investor succeeds in their endeavors.
Before you decide to invest in Kansas City real estate, you need to understand that there’s more to rental property ownership than collecting rent.
There are a lot of factors that affect your investment and its returns. And how you respond to these factors can spell the difference between winning and losing in your real estate investment.
In real estate, there are no “perfect” pieces of property. The best you can hope for is to find a rental property with the least number of problems.
That way you’ll be able to spend less on renovating and maintaining it. This means that there will be a bigger share of the profits for you to enjoy.
Keep on reading to understand common rental property problems you need to avoid before making an investment in Kansas City, MO real estate.
Problems to Look Out for When Buying Rental Properties
To get a great deal on a rental property, you have to know what to look out for.
That way you’ll be able to properly weigh your potential expenses against its returns to see whether the investment is reasonable for you.
Here is our list of the biggest rental property problems you need to look out for:
1. Weak Property Markets
When you decide to invest in a rental property, you need to consider the state of your target market.
Ask yourself these questions:
- Is the market strong or promising?
- How big is the demand for rentals?
- Will you be able to make a decent ROI?
- Do rental properties sell fast (in case you want out)?
- Do the laws, regulations, and taxes provide a favorable investment market?
Investing in a strong market with more demand than supply is one way of solidifying your chances of success.
But before you dismiss a weak market, do a little research. Find out if there are any reasons for you to take a chance while the prices are still low.
In real estate, property prices are often affected by factors like closeness to amenities, development projects, and so on.
If you get any insight about an event or project that will boost the market, it would be wise to invest. But you have to be 101% sure about it first, though.
2. Poor Maintenance and Condition of the Property
Buying a cheap rental property is not always a big win.
You may find out that the property will cost more to renovate than if you would have bought a costlier (but new) rental.
Aside from the cost of renovation, you also have to factor in the time that it’s going to take to get the property ready for tenancy.
Don’t forget about that the time your property sits vacant is income out of your pocket.
Before buying a rental property, it’s best to ask for a thorough inspection report from a reputable professional.
That way you’ll know how much repairs will be needed, how much it will cost, and how long it will take.
3. Bad Neighborhood
Location. Location. Location.
The neighborhood is usually as important as the property itself. That’s why it’s important for you to take some to consider this point.
Make sure that the neighborhood is somewhere that your prospective tenants would be comfortable living in.
That means looking for a location that’s in proximity to public transport, safe, and surrounded by things to do and see.
The area’s curb appeal will also affect your potential tenants’ decision on whether to move into your rental property or not.
You have to consider what your prospective tenants are looking for. For example, families may be looking for a spacious home that’s in a safe neighborhood and situated close to reputable school districts.
4. Little Return on Investment (ROI)
The main reason behind investing is to make money.
You have to find a property that you believe will yield decent returns.
Buying a property that has more costs in expenses than it makes in rental income is never a good idea.
That’s because, at some point, you may start using your own cash to sustain it.
Make sure you do a thorough ROI check to see whether or not the investment is worth it.
A good way of checking if the property will offer good returns is by using the 1% rule.
This rule states that a rental property should be able to yield at least 1% of its value as monthly rent.
If you buy a rental worth $200,000, it should bring in an income of at least $2,000 a month.
If that won’t be possible, then it’s not a good investment. However, there is one exception.
The only time you can ignore the 1% rule is when the property is in a rapidly growing neighborhood.
These are places where property prices are bound to go up in the near future.
5. High Property Tax Rates
Rental property taxes in Kansas City, MO can poke massive holes into your rental revenue leaving you with very little income.
You should look for properties that are situated in low tax regions. That way you’ll get to keep a bigger share of your rental profits.
Generally, metropolitan areas attract higher tax rates than rural areas.
Also, you should note that high taxes can make even the best houses in the best neighborhoods a bad investment.
Make sure you seek professional tax advice before making any final decisions.
6. Other Problems You Should Look Out for
There are other factors that can make a good property a bad investment. Some of them include:
- High insurance costs
- Proximity. Buying a property that is located miles away from where you live could lead to management shortcomings.
- High property management fees
- Miscellaneous costs
In conclusion, these are some of the most common problems that you need to consider in order to make a wise investment decision.
Remember, investing in real estate is a massive financial decision.
So, you have to make sure you do it right. Otherwise, you’ll watch your hard-earned savings go down the drain.