As a potential investor in the burgeoning real estate market, you may have noticed that there are several factors that go into choosing a home. Although you may own your own home, evaluating the value of a rental property is very different than picking a home to build your life around.
Here are crucial differences in buying a personal home vs. a rental property, according to some experts in the industry:
Put personal preferences aside
While buying a personal home may be difficult for homebuyers, purchasing an investment property presents a different set of challenges. For one, buying a rental home is different because it can’t be taken personally, according to Fred Cosgrove, Investment Location Manger for HomeUnion for the greater Tennessee market.
“Recognize the difference between personal preferences and quirks and market-oriented decisions,” Cosgrove said. “When considering investment opportunities, develop a market appeal-based profile and budget and work within that plan – not your personal appeal.”
For example, while investors might like bright colors on the walls, potential renters may not appreciate a bold red or yellow in bathrooms or kitchens. By putting your personal preferences aside, as an investor, you can attract a wider range of customers as well as appeal to your targeted clientele, Cosgrove said. By choosing neutral colors in rentals, investors are not at risk for alienating some customers.
Set a budget for the costs of managing properties
Like homeowners, investors have to pay attention to the costs of maintaining a home. Although homeowners usually don’t think about how they manage their property is adding – or even taking away – value to their home, it’s crucial for investors to factor in all the costs of owning and managing multiple properties. After all, they are working to effectively turn homes into sources of income rather than simply living spaces.
Kim Reding, Investment Location Manger for HomeUnion for the Dallas/Fort Worth market, said investors need to put a certain amount of money away for repairs. Investors need to consider the costs of a home inspection, what they will pay property managers, landscaping expenses, any homeowner association fees or other things they may need to spend on.
Evaluate the effect of the surrounding environment on a home’s value
Although homeowners recognize that the homes surrounding their personal residence may affect their own home’s value, investors must be knowledgeable about all the effects the surrounding environment has on their investment property.
“You are buying a property for investment, not occupancy, and must be aware of more neighboring environmental issues and possible influences than with a personal residence,” Cosgrove said.
Cosgrove said any changes in development or environment could determine your investment’s value or how it appeals to your targeted clientele. For example, renters are becoming increasingly interested in establishing a relationship with neighborhoods and schools, according to Reding. Developing a sense of community is important for renters, especially those raising families, which makes choosing the right market and neighborhood all the more critical.
Go into the real estate market with a plan
Although homebuyers often look at houses without a concrete goal in mind, this could spell disaster for investors if they go into the market without a plan. Brian Moore, ILM for Indiana and the Midwest market, said investors need to watch their numbers. While homebuyers don’t have to worry about breaking even every month and making a profit, investors do, which makes having a plan of action especially important.
“When you’re going after an investment property and you don’t know your background, your numbers – don’t know your maintenance costs, what your taxes are going to be – you’re going to end up paying money out of your own pocket if you don’t know what you’re doing,” Moore said.
With the things that could go wrong with selecting and inspecting an investment, many investors choose to use an end-to-end service like HomeUnion that walks them through the investment property purchase process from start to finish, ensuring that all of your costs are reasonable and make sense.
With these key differences in mind, you are better equipped to make homebuying decisions that could help you generate steady cash flow each month. For more information on homebuying trends and working with a trusted real estate investment firm, contact HomeUnion.