3 Easy Ways to Evaluate a California Rental Property

The California rental market is hot and there’s no sign of demand slowing down anytime soon. That’s why investors are snatching up properties left and right. But to succeed, you need to know how to identify desirable neighborhoods and find properties that are universally appealing to potential renters. Doing so will help you make sure you get good returns and never have a lull between tenants. So how do you do that?photodune-8055036-housing-for-rent-s.jpg

Evaluate these 3 things before you buy your next investment property:

  • Think about location and renter needs:

    You already know that location has a major impact on your success. To understand what areas are going to provide the best rental investment opportunities, you need to know what’s going on in local neighborhoods.

    You should always be on the lookout for up and coming or trendy parts of town. If you find one and have the opportunity to get in early, you can often purchase property for a great price, put some money into upgrades and enjoy increasing rent as the area grows. But how do you find these neighborhoods?

    Start by joining your local Chamber of Commerce to get the inside scoop on development projects and businesses coming to the area. You can also use this post to learn how to spot a neighborhood poised for growth.

    It’s also a good idea to look for homes in neighborhoods near great schools in order to attract families to your rental properties. This strategy can really pay off if you can place good tenants because families are more likely to stay put for a longer period of time.

  • Aim to buy properties that will provide long-term gains:

    California’s unique economy and current rental situation means you have a great opportunity to secure ongoing property income if you have the means to invest. But how do you identify properties that will attract long-term renters and consistently provide strong returns?

    Market trends show that more and more families are starting to house multiple generations in one household. To take advantage of this shift, consider looking for larger homes that can accommodate large families.

    Also, make sure you always have your properties carefully inspected to make sure they have great bones. Cosmetic things are cheap and easy to fix. Underwater pipe leaks? Not so much. But if your home is structurally sound, you can budget upgrades and renovations that in turn allow you to increase the amount of rent you’re charging.

  • Be sure to fully assess upkeep costs and tax implications:

    Many investors tend to overlook property taxes and ongoing maintenance costs, especially early in their career, but these costs can really add up!

    When you consider purchasing a new property, think about ongoing maintenance and operational costs that you’ll have to absorb. These can include things like lawn care, HOA fees, insurance and so on. From a maintenance standpoint, keep in mind that the larger your property is, the more likely you are to have to fix broken stuff. If you don’t have a lot of wiggle room for repair costs, consider buying smaller or newer properties.

    You also need to have room in your budget to afford increasing property taxes over time. As the value of your property goes up, your rent should too, so long as demand stays high. However, it’s possible that you’ll reach a point when your property taxes have gone up substantially because of the improvements you’ve made to the home and your demand has gone down. In this case, you could be facing financial challenges if you didn’t consider the impact of rising property taxes early on. Do some math and make sure you take these figures into account as you contemplate a purchase.

Use these three simple criteria to evaluate potential rental property to identify great buys and avoid common investor pitfalls.