With the rental market booming in Denver and rents soaring, owning rental properties is becoming more attractive to savvy and first time investors. Just in the last two weeks, we helped two investors find rental properties to purchase with some major cash flow.
Are you thinking about investing in a rental, but don’t know where to start? You are in the right place. In this blog, we will share some of the tips on finding a good rental property in the Denver area; but if you need more details, we encourage you to schedule a private meeting to discuss all options.
One of the things that can kill any good potential investment is vacancy! The best and most profitable time to rent a home in Denver is typically March thru August. Try to line up your closing date on the home in that time frame.
When negotiating a contract to buy the property, ask the seller to allow showings and advertising for rent the last 3-4 weeks of being under contract. That way you might have the property rented for right after the closing and avoid vacancy all together. Of course, the fact that you don’t yet own the property would need to be disclosed in the lease and the lease made contingent on the closing.
Another option is to purchase a property with a renter in it already. You could save yourself quite a bit of money in vacancy costs and cost of finding new tenants (advertising, commission, utilities during vacancy, etc.). If you do find a property that has a lease in place, request copies of the lease, application, background results and move in pictures/forms. The only thing that is worse than a vacant investment property is one with a bad tenant who doesn’t pay on time. So do your due diligence.
As an investor, you want to recoup your costs as soon as possible; buying a property that is rent ready would help you achieve that. If you buy a property that needs a lot of work, it might be months before you can have it completed, hence big losses on vacancy.
Another very important aspect, that most Realtors who do not often work with investors miss, is verifying that the HOA allows rentals or is not maxed out with rentals. Most HOA controlled communities have a cap on the amount of rentals allowed in the community. This is done to maintain FHA and other favorable financing on the property. Before you waste too much time negotiating offers, make sure this isn’t the case. Beware of any rental restrictions the HOA may impose.
Speaking of HOAs, if you do decide to buy your investment in a community managed by HOA, we can’t stress enough how important it is to obtain special assessment insurance coverage. It is very inexpensive (under $100 per year), but can save you thousands if for example the building roof needs to be replaced. We just had a closing where a seller (not represented by our company) mentioned that she recently had to shell out $3000 towards special assessments in her HOA. Ouch! That would kill any profit on your rental property.
Lastly, as with any real estate purchase, location should be important when buying an investment rental property. Conveniently located homes would attract more renters. Location is so important because it can set your property apart from others that are similar but located in less desirable areas. It can make your property stand out among others, and a good location can even make up for other shortcomings a property may have, such as small bedrooms or limited storage space. Many renters select rental properties based on location first, and other features second. Also, location is one of the few things about a property which cannot be changed. So, select your property’s location wisely!
Owning a rental property is becoming more and more attractive. Many would argue that it is safer than investing in the stock market. At Evolve Real Estate and Property Management, we help regular people become successful real estate investors. With our knowledge of the Denver real estate and rental market, we can help you do the cash flow and profitability analysis and line up good rental investment properties.