What To Look For In A Rental Property: 5 Vital Factors To Consider
When buying a property, most people choose between two primary purposes: to live in it, or to use it as a rental. If you’re looking at properties for sale in the UAE for the second reason, you may have different considerations to keep in mind.
For one, you won’t be taking your own preferences into account since you’re not the one who will be living in it in the first place. You would also need to think about profitability and how the property can help build your wealth.
If you’re unsure how to pick the right property, this article tackles the five vital factors you must consider and the most important things you must look for in a rental property besides the seller’s asking price:
Location is everything when buying property, but it becomes even more crucial when you intend to use it as an income-generating investment. When choosing a rental property, the last thing you want is to get stuck in a place with a declining rental industry.
Stick to areas with a growing population as they are more likely to need more housing options. You should also consider the property’s proximity to essential establishments like schools, restaurants, banks, parks, and malls. Having a low crime rate and a healthy job market is also important.
2.Ease of Management
Being a landlord is a significant responsibility, so it may not sit well with passive investors. That said, you should take your comfort level as a landlordinto account first before diving into the rental business.
Think about how well you handle home maintenance – both physical and financial. Some people go the DIY route on the repairs and updates in their rental properties to save money, but that doesn’t always work out, especially if you're not quite a handyman. Even if you are, maintaining a house takes time and effort that not everyone has the luxury of having.
If you’re not ready with what was just described, you can opt to seek help from Abode’s property management services.
Since generating rental income will be the main goal for the property procurement, you have to know whether you’ll get profitable returns on your investment.
To do this, do research on the average monthly rent in the area. You should also take into account the mortgage payment and whether the profit from rent, minus the maintenance costs and taxes, would be sufficient to cover the real estate price and any interests added.
It is also vital that you do research for as far as the next five years to see where the place is headed. To be sure, stick to properties that you calculated would get at least 10 percent ROI. This should be a clean profit, with all other expenses such as insurance, taxes, maintenance costs, and other fees already deducted.
What use is a high-rent property if it remains vacant? Besides the rent, you also need to research the number of listings and vacancies throughout the neighborhood.
If it has unusually high vacancies, it may be a sign that the community is in decline. Of course, it is also possible that there’s a seasonal cycle that makes renters come and go (i.e., school year). Be sure to determine which one is involved.
But whatever the case may be, the fact remains that high vacancies force landlords to lower the rents in order to fill up their properties. Looking at it the other way around, landlords with properties in low vacancy neighborhoods have more opportunities to raise their rent.
Taxes were mentioned earlier in profitable returns, but there’s more to it than just being a factor of the profit. Although it is just one number in your computation, taxes can actually eat into your profits more than maintenance and insurance costs can.
Taxes are lower in rural areas but higher in cities and business centers. However, the situation is reversed when it comes to vacancies and average monthly rent rates. This means that you have to try to balance out everything that comes into play.
If you’re not sure, consider calling a local tax assessor to determine the areas that are worth the investment. You may also ask about the rate on taxes for investors and owner-occupants, as some charge the former higher than the latter.
Buying a rental property is a decision that is closer to a business decision than a personal one. Remember to take into account all the contributing factors that affect a property’s profitability to ensure that you achieve your goal of building your wealth.
Mark Tolland is the Founder and Managing Director at Abode Property, a boutique real estate brokerage ﬁrm providing top-notch, personalized services to discerning landlords looking to sell or let out their premises in prime locations of Dubai like Marina, Downtown and The Palm. The firm also advises global HNIs looking to rent or buy a prized asset in Dubai, and prides itself in upholding high service standards, ethics and accurate advice.