Residential Real Estate: What is a Suitable Rental Property (Part 2)
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Residential Real Estate: What is a Suitable Rental Property (Part 2)

Few new investors think about the age of the property as an important consideration when buying for investment. It's important that the home you select fits the type of tenant that's available.

             rental property - age of property

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Is the home too old to be a rental?

Few new investors think about the age of the property as an important consideration when buying for investment. But it is. While it's possible to rent out almost any property, it's simply a fact that older properties need far more maintenance and repair (M&R). Indeed, as homes get to be more than 10 years old, the amount of M&R increases dramatically. At more than 30 years of age, there's likely to be a hundredfold increase in the costs of M&R. Don't believe it? Consider. Short of defects (which in some cases may be covered under a builder's warranty), there's little likely to go wrong with a house during its first 10 years of life. Yes, there may be light bulbs to replace and filters to change, but most of the home's systems should operate flawlessly. However, starting at about year 11, things start to go wrong. In some areas with sediment or minerals in the water, the water heater can go out. That can easily be a $500 replacement bill. The house is also likely to need painting both inside and out, which can cost upwards of $4,000 to $5,000. Fences may need repairs, kitchens, and baths may have broken tile or cabinets. In short, the repairs will start. By year 30, they could skyrocket. Depending on the type, the home might need a new roof. That could be anywhere from $8,000 to $25,000. A new heater and air conditioner could be in order - add another $5,000. In some areas of expansive soil, the foundation can crack. That could be $50,000 to fix it and any associated structural damage. And don't even think of homes that are historic - more than 100 years old. Termites could have eaten through much of the wood. The plumbing and electrical may need to be replaced. In short, the whole house might need to be revamped. All of which is to say that when looking for rental property, the newer the better.

Does the rental fit the job base?

It's important that the home you select fits the type of tenant that's available. For example, if you're in an industrial area where most people work in meat-packing plant for low- to mid-range wages, a small mid-priced three-bedroom/two-bath home is likely to appeal. There should be many tenants who can afford to rent the property. On the other hand, if you're in an area where there are many high-tech companies that pay very large salaries, the tenant base may turn up its nose at your mid-priced home. Rather, it's looking for something bigger and more elaborate. A home with lots of square footage with high-end features is more likely to appeal. Yes, you'll pay far more for such a house. But, on the other hand, you're likely to be able to rent it for more money and more quickly in its market. The point is that the rental should fit the job market. You don't want to have to wait months to rent up your property because it's too high-end or too low-end for the tenant base.

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