5 Things You Should Know Before Buying an Investment Property

Posted by Staff Reporter on Feb 23, 2018 09:47 AM EST
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5 Things You Should Know Before Buying an Investment Property

The San Diego area is one of the "hot" real-estate markets in California. San Diego, along with Los Angeles, San Jose and San Francisco have experienced broken real estate valuation records year after year. However, San Diego, unlike those other cities, still has relatively affordable single-family and multi-family buildings that you can easily convert into an investment property or rental. Moreover, San Diego gives you the advantage of "city-life" without the hour-plus congestion that Los Angelenos and San Jose/San Franciscans struggle through every day. From Ocean Beach, Pacific Beach, Imperial Beach, and Mission Beach to El Cajon, North County and Downtown, you can pick up a property anywhere and find a devoted constituency of residents who want to stay.

The San Diego real estate prices are at all-time highs, but they are still relatively cheaper than competitor markets in LA and the Bay Area. There has never been a better time to invest in San Diego and start generating passive income. However, being a landlord isn't as simple as buying a property and filling it with residents. If you are thinking of breaking into this market, here are five things you should consider about managing your new property (or properties).

Finding the Right Property

You first need to invest in the right property. Think about your funds, spare time and expertise. The idea of buying a "fixer-upper" might sound romantic but not when you are knee-deep in repairs, you still have deadlines in your regular job, you keep missing your kids' practices and you cannot help them with their homework. You still need to manage all the things a fixer-upper needs in terms of remodeling and repairs. Unless you have the expertise, money and time you probably will want to purchase a property that is ready to go.

Instead, focus on buying the right property for the right price. You need to take into account taxes, maintenance and the mortgage. Ideally, you'll want your rental income to cover your expenses. Once you know the expenses, research the neighborhood. What prices can rent a property with your amenities in your location for?

Time Commitment

Many people underestimate the time commitment a rental property can demand. Securing a contractor to repair an issue, finding and screening a resident takes time. Realistically think about your time and how much you are willing to give to your property. Can you spare the couple hours a week your property may require? How quickly are properties leased in the neighborhoods you're looking into? Will advertising take up a lot of your time?

Budgeting for Income and Expenses

There are two things to budget for in a rental: routine upkeep and repairs. Routine upkeep is the standard expenses, paying someone to deep-clean the property after tenant leaves, replacing carpet, appliances, lights, and more. These expenses can quickly add up. Moreover, you also need to consider the inevitability of tenant-damage to your property, you can minimize this risk by screening a reliable resident, but no system is perfect.

Legal Issues

California is a pro-renter state which means there are a lot of laws you need to be aware of before you rent a property. How familiar are you with the Fair Housing Act and the Fair Employment and Housing Act? These laws control how you select tenants and so you need to offer accommodations for people who have disabilities, you need to meet minimum living standards (such as offering heat and other amenities). Finally, there is the ever-present risk of evicting a troublesome resident (it takes a few months). You need a full understanding of these laws, or you could expose yourself to litigation.

Tenant Issues

Finally, tenants are an essential ingredient to any rental property. Everyone knows someone who had a nightmare tenant. You need your tenant to pay rent on time, not disturb neighbors, not destroy your property, and get along with you. There are many different types of tenants and screening (investigating and questioning them) can eliminate much of the risk.

However, what do you really know about tenants? What attributes are positive and which are negative? As you can see, there are a lot of issues to consider before buying an investment property. A property management company can help property owners address many of these issues, in fact, these property management companies often have a bank of experience upon which they can rely to avoid these problems.

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