If you're buying a house and might want to rent it out, take the time to understand what makes a house easy to rent. Not every rental home starts out that way. Sometimes an owner must rent because a job or family matter forces relocation, but they don't yet want to sell. Here's how to raise the odds of a successful rental.
Buy a Home in a Good Location
Remember the adage: location, location, location. Don't buy a home in a troubled neighborhood where gunshots ring out night after night and then wonder why it's difficult to rent. A good location is generally a desirable and popular neighborhood with good schools, high curb appeal, and evidence homeowners display pride of ownership.
If you buy a home in a neighborhood near a busy intersection or with noise problems such as a nearby freeway or train tracks, the value will always be less for that home because of its location. Homes within a short commuting distance to centralized working locations—or near transportation to those employment hubs—are preferred.
Buy in a Neighborhood of Owner-Occupied Homes
The highest possible market value is typically obtained in a neighborhood of homes where homeowners reside.
Homeowners will pay a premium to live among other owners. Do not buy in an area with a large percentage of rentals unless that area is already in high demand—such as central downtown, close to work and transportation.
Sometimes you can easily pick out the rental house on a street where mainly other homeowners live. Tenants don't always maintain the yards in the same condition, with the identical meticulous attention to detail homeowners give. The home might also show deferred maintenance, because tenants sometimes don't report problems to the owners for fear any repair costs could cause an owner to raise the rent.
Buy a Home With a Minimum of 3 Bedrooms and 2 Baths
It's not to say that a 2-bedroom home is hard to rent, but it is easier to rent a 3-bedroom, and the home will command a higher price.
Homes with 3 bedrooms and 2 baths tend to appeal to families and to individuals who need to take on roommates.
A potential tenant who needs a 2-bedroom home might be tempted to pay a little bit more for a 3-bedroom home, but a tenant who needs 3 or more bedrooms will not rent a 2-bedroom house. The best resale value is also often found in homes with 3 or more bedrooms.
Buying a Newer Home Often Means Fewer Repair Issues
From an investment point of view, older homes built before 1950 are often better built, but newer homes tend to require less maintenance. Appliances, water heaters, HVAC systems, roofing, plumbing, and electrical systems, might not need to be replaced in a home that was built within the last 5 to 15 years.
Newer homes typically don't require retrofitting, either, the way an older home might. Code requirements are sometimes grandfathered in until a repair becomes necessary, especially with regard to water-saving devices or low-energy items. Bear in mind that replacing a shake roof, for example, with a composition shingle roof, could involve removing the underlayment and installing a new layer of plywood or oriented strand board (OSB), which drives up the cost.
Check on Hidden Costs of Ownership
Before releasing home-buying contingencies, you want to know what you're in for. Hidden costs of ownership can eat away at potential profits. Find out if the home is insurable as a rental. If the home will be vacant for any length of time, find out if you can purchase vacant home insurance and what that specialized policy will cost. Do you need earthquake or flood insurance? Examine the tax records to determine if the tax rates include additional fees that don't affect other homes nearby.
Make sure updates were permitted, especially if it appears that the home could have been remodeled without permits. Verify utility rates and types of utilities. An all-electric home, for example, might cost more to heat than a home on natural gas, and dual pane windows offer more insulation than single pane.
And here's a bonus tip: If the home is located within a community regulated by a homeowner's association (HOA), investigate any restrictions on short- or long-term rentals. The last thing you want is to buy a home planning to rent it out only to discover that you are prohibited by the HOA from offering the home for rent.