Are you considering buying a rental property? There are many things to consider when getting involved with a rental home. Professional property manager Peter Garian has put together the top three considerations you’ll want to take into account when investing in a rental property in the Tampa/St Pete area.
“As a property manager and rental property owner I have pretty much seen it all when it comes to residential rentals”, says Garian, a property manager and Broker Associate at Investors Choice Realty in St Petersburg, FL.
Consideration 1 –
Location. I can’t stress enough about how important the location of your rental property is. Often times new investors don’t put enough emphasis on where their property is located. You will want to purchase your rental home in an area that is conducive for rentals. Watch out for HOA’s and rental restrictions on any property you are looking to buy. Fees from a homeowners association can eat into your profits quickly and often times there are restrictions on how and when you can rent your property. Also, consider the neighborhood at both ends of the spectrum. A high-end luxury home in Tampa can often bring a great rental price but many times these homes have less demand for a renter and can sit vacant for many months taking away any chance for a profit especially if you are making mortgage payments every month. At the other end of the spectrum, a house in a “war zone” can often have high turnover which is very expensive. Finding the balance in location will help you maximize your rental income. You want an area that is affordable, expanding and offers very little restrictions in leasing.
- Cost vs. Value – Many of us have heard this saying before. You can look at the price of a property and think it’s a great deal but sometimes when you look close there’s a reason the property is “cheap.” Low priced homes are often low priced for a reason. If it needs a major renovation you will need to add those costs to your bottom line and determine how long it will take you to recoup the cost of the repairs. Touching again on location, many times homes in high crime areas of Tampa and St Pete, appear to be low priced, but in fact, the actual cost is very high when you end up dealing with high turnover and tenant damage to the property. Plus you’ll probably have a smaller pool of available tenants who might consider living in that particular neighborhood. You can make changes to the building but it’s very difficult, if not impossible, to change the neighborhood. I have seen it time and again where people buy a rental property that has a low price tag and in the end, it costs them way more than they could ever actually make in rental income. So be sure to not make price the main consideration. In fact, I recommend making it second or 3rd to location and growth potential.
- Growth Potential. This consideration is very important when looking at rental properties in St Pete and the Tampa area. What is meant by growth potential could be called, equity potential, or highest and best use. Basically, can the property become more than it is as it sits now? That’s the question you need to ask yourself or your agent who’s helping you purchase your rental homes. Some examples of highest and best use are, taking a property that has strictly been a residential property and making it commercial. You’ll need to consult with the city or county to determine if zoning will allow for this. But if it is possible, you can generally get much higher rents for a commercial property than a residential rental property. Other considerations might be adding another living unit, building a new property if there’s extra space on your lot. Or maybe subdividing and selling a portion of your property. The simplest form of growth potential is simply finding a property that has lower than market rents and raising the rents to increase income! Your agent should be able to give you advice in this area.
As a real estate broker at Investors Choice, we help our clients find value and often make price a secondary consideration behind growth potential.
If you would like some ideas on how to expand the value of your rental portfolio or if you’re just looking to get started in buying rental properties in St Petersburg and the Tampa Bay area, give us a call. We love to talk real estate and we’d love to help you invest in your future!