Residential Real Estate: What is a Suitable Rental Property (Part 1)
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Residential Real Estate: What is a Suitable Rental Property (Part 1)

There are many ways to invest in real estate from commercial/industrial to bare land, from dealing in options to becoming a dealer in property. The one avenue most pursued by new investors, however, is to buy a home or condo, rent it out, and hold it while waiting for price appreciation to bring in the profits.

                                rental property

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Are you ready to start in residential real estate?

There are many ways to invest in real estate from commercial/industrial to bare land, from dealing in options to becoming a dealer in property. The one avenue most pursued by new investors, however, is to buy a home or condo, rent it out, and hold it while waiting for price appreciation to bring in the profits. If waiting for price appreciation to bring in the profits. If this is the course you have chosen and you have selected a house (or condo), you need to ask yourself if your choice is suitable as a rental. It's important to understand that not all homes make good rentals. Some are perfect for owner-occupants and some are perfect for tenants, but often the same home is not perfect for both.

Is the home too big/too small for tenants?

The size of the home is critical in evaluating it for tenant use. If it's too small, you may have trouble renting it out. If it's too big, you may get too many people living in it, which will produce more wear and tear than you'll like. For example, a one- or two-bedroom single-family house isn't likely to appeal to tenants who have children. They will want more bedrooms. And since most tenants do have children, you'll be narrowing your pool of possible candidates. Most likely you'll have to find a single person or couple to rent to. That could mean a longer rent-up time. On the other hand, if you have a single-family house with five bedrooms, you're likely to appeal to very large families, those with many children. (You're also likely to appeal to two-family groups who want to share a place to save money on the rent.) While there's nothing wrong with lots of kids, they do tend to produce a lot of wear on the property. And don't think you can restrict the number of children in a rental. According to the Fair Housing Act of 1968, you cannot discriminate on the basis of familial status, which means children under the age of 18 living with parents or legal custodians. Indeed, it's very hard to limit the number of occupants in a house. Fire department regulations sometimes specify that a bedroom cannot be occupied by more than two adults and two children. That's 20 people in a five-bedroom house. All of which is to say: if you're looking for a rental, a big house will likely get you a very big family. Most investors prefer a home of three bedrooms and at least two baths. In some measure, getting just the right size applies also to condos and even to apartments (one to two bedrooms is usually ideal here).

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