You're considering and maybe ready to get your feet wet as the market continues to rebound into 2015 and start looking at investing in rental properties in Alpharetta. You're wondering where to start. Well, you're not alone. The Alpharetta, Roswell, Johns Creek, Cumming markets--the entire northern Atlanta arc--is in a bit of an investor frenzy right now. Rentable properties stay on the market for days or even hours before they're under contract.
What To Consider Before Taking the Leap
- Availability of Rent-able Properties. When you're an investor, as opposed to an owner-occupant buyer, you must look for properties without rental or leasing restrictions. Homeowner's Assocations (HOAs) often put caps on the percentage of owners in the subdivision who can rent their units--for instance, typically around 25% of units can be rented. They do this with the rationale that owners generally take care of their properties better than renters. They also want to protect the stability of the neighborhood and hopefully lessen the turnover, which bolsters the property values in the community. If the rental caps have been met, then you must put yourself on the waiting list which can mean years in waiting.
To DO: Find an agent who will research the potential investment properties for you without rental restrictions. [Note: There may be legal ways around rental restrictions in some instances. Be sure to discuss this carefully with your agent and/or real estate attorney.]
- Condition of the Property. How much, if any, are you willing to front for repairs/upgrades, if required? So many times I have potential buyers who love the price of "As Is" foreclosures, but when they see the property and the fact that it requires $20k of work before it can be rented, they decide to keep looking. There are no "steals" out there: immaculate properties for thousands under market value. It's a savvy market, where Seller's and their agents know what has sold and what price they can likely get a property for. Your buyer's agent, too, will pull the recent sales and comps and give you a good picture of what the property is worth on the current market and help you negotiate the best price. But ask yourself up front if you want a property that you are prepared to fix-up/repair or do you want a move-in ready property?
To Do: Assess whether you're looking for fixer-uppers or strictly at more move-in ready properties. Do you have the money, time, resources to make repairs? Determine the property you're shopping for.
- Calculate Rental Return on Your Investment and Cashflow. The most common tools to determine investment decisions are calculating income and the "Cap Rate."
1. Determine annual rent expected from the property. Your real estate agent can provide you with rental history for the property and subdivision/area.
2. Determine the annual expenses of owning the property. (taxes, insurance, repairs, utilities you--not the tenant--will pay, maintenance).
3. Calculate annual net income. (annual rent minus annual expenses)
4. Calculate the capitalization rate or "cap rate." (Net annual income / Cost of property = Annual Return you can expect for your investment)
To Do: Do the math!
Example: Condo with asking price of $80,000 and monthly expected rental of $1050 ($12,600 annual) :
Vacancy rate 5% = $630
Real Estate taxes = $524
Maintenance & other expenses = $1,000
Total Expenses = $2154
$12,600 (annual income)- 2154 (total expenses) = $10,446 Annual net income
Calculate the capitalization rate, "Cap Rate": 10,446 / 80,000 = .13 or 13% Cap Rate
Generally 4-10% per year is reasonable for investment property. Clearly, this one is worth pursuing further.
So what's left to do? It's a new year. You decide. Tony Robins said, “A real decision is measured by the fact that you’ve taken a new action. If there’s no action, you haven’t truly decided.”
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