Are you thinking of buying an investment property in Montgomery, AL? Well, you’ve chosen the best time!
If you make the right choice, a rental investment can be very rewarding. In fact, many of the world’s richest today have their roots in real estate investing.
Did you know that Montgomery is one of the best cities for renters? What’s more, the city is known for having one of the country’s best rent-to-income ratios, making it extremely attractive to renters.
Despite these promising statistics, if you want to make the most out of your investment, you need to follow insider tips. While a rental investment has the potential to change your financial status, due diligence is critical.
In this article, we here at Southern Realm will go into the basics of purchasing an investment property in Montgomery. Follow our recommendations to minimize risks and maximize the potential of your property purchase!
What Is the Montgomery Real Estate Market Like?
Montgomery is hot right now. The city has a low employment rate and a strong cash flow market, thanks to strong rental demand. Also, rents are increasing and vacancy rates are below the average rental vacancy rate for the State of Alabama.
Top Tips for Real Estate Investments in Montgomery
1. Secure a Downpayment
Investment properties, unlike owner-occupied homes, require a substantial downpayment. Also, the approval requirements tend to be quite restrictive.
In an owner-occupied home, you may be able to put down as little as 3.5% as long as you have a good credit score.
However, when it comes to investment properties, you’ll need to put down at least 20%.
If you don’t have any savings for a downpayment, there are multiple options you may want to consider, including taking a bank loan or sourcing funds from friends and family.
2. Buy in the Right Location
This cannot be emphasized enough. Location is probably the biggest factor you’ll need to consider when thinking of real estate investments. The location in which you choose to invest in can make or break a real estate investment.
Even within Montgomery, there are certain locations that carry more potential than others. It’s for this reason that research plays a key part in successful real estate investing.
An ideal investment location is one that possesses certain characteristics. These can be low crime rates, access to public transportation, a growing job market, and one with plenty of desirable amenities.
3. Understand the Potential Profit Margins
Making a blind investment move is a recipe for chaos. According to real estate experts, aim for an investment that can yield at least 10 percent in the annual rate of return. So, with an investment property worth $250,000, the rate of return should be at least $25,000 in annual gross income.
To calculate your profits, you’ll also want to factor in the operational expenses. Generally speaking, operational expenses amount to about 1 percent of the value of an investment property. So, that would sum up to about $2,500 annually using our example above.
4. Go For Rent-ready Properties
Rent-ready properties are just that – ready to be rented out to a tenant. Unlike fixer-uppers, they don’t need work – you can start filling them with tenants right away.
You can, however, also choose to go with a fixer-upper. They have less competition, sell at a bargain, and can be customizable. That being said, this allure does often come with its fair share of risks. Budgeting can be an issue, repairs can take longer to complete, and there could be more hidden issues in the home.
Preferably, choose fixer-uppers if you’ve got experience with large renovation projects. Otherwise, stick to rent-ready properties for your own peace of mind.
5. Avoid Making Emotional Decisions
Buying a property is a huge decision. As a matter of fact, for most Americans, it’s probably going to be the largest decision one will ever make in their lifetime. So, it’s quite easy for one to attach their emotions to the purchase decision.
Making emotional decisions, however, can lead to poor investment decisions. The last thing you want is to get influenced by factors other than price, location, rate of return, and resale value.
If you’re just starting out, hiring a professional like Southern Realm Property Management help can help you make sound investment decisions.
6. Understand the Alabama Tenancy Laws
After lease signing, both parties take up certain rights and responsibilities. As a landlord, you have a responsibility to ensure:
- Your tenant lives in a habitable rental property as per the dictates of the state’s Warranty of Habitability rules
- Your tenant lives in quiet and peaceful enjoyment of their rented premises. In Alabama, you must provide your tenant with a notice of at least 48 hours prior to entering their rented units
- You respond to their maintenance requests on time
- Your tenant has a right to live in a discrimination-free and harassment-free environment
The list goes on and on. Understanding the state’s landlord-tenant laws is key to knowing your responsibilities as a landlord. You’ll also need to keep up with any changes that may occur.
7. Have a Screening Process in Place
Difficult tenants are every landlord’s worst nightmare. Among other things, they will cause negligent property damage and pay rent late or miss it altogether. Having a good screening process in place will help you sniff out such tenants from the prospective tenants’ pool.
A good screening process is one that examines prospective tenants in a number of areas like the level of their income, credit rating, as well as criminal, rental and employment backgrounds.
8. Hire a Property Management Company
Being a landlord is demanding and, without the requisite skills and experience, it can turn out to be stressful and frustrating.
Fortunately for you, there is a way out. You can hire an experienced property management company like Southern Realm Property Management to handle all aspects of your investment property, from filling vacancies to rent collection and everything in between.
In a Nutshell: Real Estate Investment Tips in Montgomery
Besides being a promising real estate destination, Alabama is one of the top landlord-friendly states in the country. This means you’ll have an easier time managing your Montgomery tenants.
But before making any investment decision, consult a professional first – more so if you are just a beginner. We here at Southern Realm Property Management would be glad to help you attain your investment goals!