There are often times apprehensions in the minds of new investors when buying single family homes. Is the location, and the condition of the house, right? Will it fetch the desired rate of return on investment or not?
These are some of the questions going around in the mind of the investor when deciding to buy a single-family home. Here is an easy method of analyzing whether your investment on a single-family home is correct or not.
Invest in a market that you are comfortable with
Check out the property prices, average monthly rents, and days on the market etc in the housing market. Decide on buying a single-family home only when you are comfortable with these important criterions. Never invest your money in a market where you do not feel comfortable financially.
Calculate the rehab costs
This is a very important factor in deciding in favor of a single-family home. If you feel like you will have to spend a lot of money on repairs before making the property desirable for potential tenants, it may be better to stay away from such an investment. Check out our investors guide to walking properties.
Buy only if you feel confident about getting repairs done in an amount that you are comfortable spending. You must not consider just labor and material costs but also the holding cost and other costs involved with closing. Add all these costs to the purchase price to find out your profitability from the project.
Always have a margin for vacancies
No matter how prime the location and condition of the house, you will have to consider vacancies that can upset the applecart for you. You also need to spend money on marketing to attract new tenants after a tenant has moved out. You can also utilize a professional property management company like IIP Management to handle all of this for you!! Not keeping in mind expenses associated with vacancy can prove to be a drain on the profitability of the project.
Is there positive cash flow or not?
Once you have added all the costs like repairs, vacancies, holding costs, insurance, mortgage payments etc. to your gross rent then you are left with your net income. If you have positive cash flow after meeting all the expenses, it may be worthwhile to buy such an investment property. Otherwise, it is better to move on to the next property you have in sight.
It is very important to find out the actual monthly rent of the property rather than doing all the math with general monthly rents of the area. Acquire all rent rolls, expense sheets, leases and any other information about the property you are interested in before moving forward.