A red "for rent" sign in a window of a grey building

10 Things to Consider When Investing in Rental Property

In Buyers, Homeowners, Sellers by Doug Phelps

Have you ever considered owning a rental property? Now can be a great time to buy. Especially in Colorado, it is a hot market for both long-term and short-term rentals because of our beautiful scenery, fun outdoor activities and a vibrant economy.  Thousands of people move to Colorado every year and rental property is a great investment. Those looking for property to rent in the Denver metro area may be looking on either a short-term or long-term basis. Whether you already have rental property as part of your portfolio, or if you’re considering becoming a landlord for the first time, here are some key factors to keep in mind. 

1. Is it within your budget?

Especially if you already have a primary residence and existing rental property you need to make sure the expenses of a rental property fits within your budget. First off, you want it to cash flow, meaning the income you make from rentals exceeds your ownership expenses and to be able to set funds aside to make sure you’ll be able to cover repair or replacement costs when something breaks or you need to re-carpet the living room. Seek to have your debt to income (DTI) ratio be 40% or less, or else you may have a more difficult time being approved for a new mortgage.

2. Are you paying in cash or getting a mortgage?

Speaking of mortgage, many people choose to finance rental property regardless if they have the capital to cover the list price.  You need to decide if you’re going to purchase your new rental property with cash or if you want to go through the process of getting a home loan.

3. Location of the property

Location is vital in real estate and this includes looking for rental property.  When looking for rental property, look at it as if it might be your primary residence. After all, you may be visiting the home on a regular basis for your own getaway, for maintenance activities, or meeting with your tenants, so you should make sure you like the neighborhood.  If you plan to make it a long-term rental for families, look for property in good school districts.

4. Location in relation to you

Another aspect of rental property location, you should determine where you want the property in relation to you.  For example, some buyers of rental property want their tenant across the street or in the same neighborhood, while others have out-of-state property and a property management team who manages it from afar.  This is purely a personal preference.

5. Define rental terms

Colorado is beautiful and a certain hot spot for tourism which means the need for short-term rentals will continue to be a strong one.  Sites like AirBnB help homeowners rent out their space on a short-term basis and depending on the location of your property, this might be a great option. Keep in mind the type of property you want in correlation to what kind of rental you want.  For example, a good long-term rental unit might be a suburban located single family home, while a good short-term rental unit might be a condo near a ski resort or mountain town.

6. Neighborhood condition

As with any real estate hunt, keep in mind the state of the neighborhood and what might be up and coming for it.  If there is currently a lot of construction in the neighborhood for example, that may keep renters away because of the noise.

7. Walkability

Colorado sees a lot of bright sunny days and most people enjoy walking around their neighborhood from time to time.  When you’re looking for rental property, take a look around the neighborhood to see if there are dog parks, walking paths, and grocery stores close by.  These neighborhood amenities stand out to renters.

8. Rental Comparisons

If you have a specific neighborhood or home type in mind, double check what you may be able to get for rent on a potential property.  This may help you to define your budget as well.  Looking at comparable properties in the neighborhood will give you a great idea of what the neighborhood rental rates typically are.

9. Size

Relating to what kind of rental terms you want, you should consider the size of the home and your intention with the property. For example, if you’re considering a small condo to start with as your first rental property, you should try to understand if that would be easy to rent out.  Also consider that if you’re looking to buy long-term rental property then renters may like some more space as opposed to the latest community amenities.

10. Property Type

We’ve touched on this point in other points, but definitely consider if you want to purchase a condo, townhome, single family home or multi family home.  Each property type has its pros and cons depending on your preference.  If you purchase a home in an HOA controlled community then do make sure you will be able to rent the property as some HOAs have restrictions, especially for short-term rentals. 

Do you have any tips you’d like to share about finding rental property? Are you in the market to buy or sell your home?  Call and text me at (720) 323-4176 or email me at [email protected]