Considering Rental Properties?

Today is a great time to get into the landlord business. Finding the right property at the right price and in the right location can be an extremely profitable venture. In contrast, the wrong property in the wrong place at the wrong price can be disastrous.
Being a landlord is not difficult but requires hard work, staying abreast of market changes and treating it like a business. You will need to take a hard look at the potential revenues as well as the expected expenditures to make sure the numbers make sense before moving ahead with a specific property. Don’t waste your time and money on a rental that will not cash flow. Here are some things to consider if you want to buy a rental property in the Denver area.

What type of property should you purchase?

Condos, single family homes, multi-unit, and apartment buildings (over four units) all have their advantages and disadvantages. Weigh the pros and cons and purchase the one that makes the most sense for your budget, skill set, goals and desires. Condos are generally less expensive to purchase and easier to sell than apartments and multi-units, plus the upkeep is easier because the exterior is maintained by the Home Owner’s Association. But be aware that the association fees can end up increasing faster than rent, leading to future cash flow problems. Though holding costs are higher, single family homes are the simplest type of investment property because they are usually easier to rent or sell and tenants generally stay longer. Multi-unit and apartment complexes have the advantage of spreading the cost out so cash flow is not impacted as much by empty units. However, greater experience in business and accounting will be needed since repairs (i.e. roof or parking lot repairs) can be more costly and require reserves to be set up and funded for future needs.
Lending for condos, single family homes and units up to 4 are usually funded by traditional loans. When there are more than 4 units, it is treated as a commercial loan.

What due diligence should you complete before purchasing a rental property?

First make sure you understand the acquisition costs, rehab costs, rental potential and the current vacancy rate conditions.  Be prepared financially to cover a vacancy period, repairs and maintenance.  Make sure to check all units, review current leases and tax returns of previous investors.

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