Before investing in rental property, it is always wise to do a little homework and pre-planning. Such actions on your part can substantially improve the likelihood that your resulting rental property investment will be successful. The following are some key elements that every careful investor should investigate and consider before purchasing rental property and becoming a landlord.

1. Location, Location, Location - This is a familiar slogan in the real estate world. The location of a rental property plays a large role in the supply, or demographics, of tenants who are available to rent the property. It only makes sense to purchase properties located in areas where you'd be comfortable in dealing with the general population living there.

Location also plays a significant role in the market value of a property, and its future appreciation potential. Properties that are located in poor or decaying areas will not have the long-term market value appreciation potential as properties that are located in better neighborhoods.

1. Condition of Property - A low-priced bargain "fixer upper" investment property, while looking attractive on the surface, can turn into an expensive money pit to make the necessary repairs and upgrades. One reason is that neglected properties in poor condition commonly have "hidden defects" that must first be corrected before the planned upgrades can be made. For these types of properties, not only must the additional renovation costs be absorbed, but also the "lost rent" opportunity cost must be factored in. In this respect, purchasing a more expensive and reliable "turn key" rental property that is in good condition may actually turn out to be a better overall investment.
   
2. Price and Financing - Knowing the actual fair market price of an investment property is a necessity in order to prevent paying too much for the property. The fair market price for an investment property can be found from a comparable market analysis, or CMA.
   
   Another method for determining the fair market value of an investment property is through a method known as the "capitalization rate", or Cap Rate for short. The Cap Rate of a rental property is found by taking its net operating income, or NOI, and dividing it by the property's market value. This ratio, expressed as a percentage, should be equal to (or greater) than the average cap rates of similar investment properties in the area.
   
   

For the rental property purchase, the financing method and costs should be investigated and determined prior to making an offer on the property. In this manner, it is also wise to get pre-approved for financing at a lending institution. Getting pre-approved for a mortgage definitely provides a buyer with more credibility, clout and leverage in the marketplace with the seller

1. Property Management - To manage or not to manage, that is the question you must ask yourself. This is because once you purchase a rental property, you'll have the choice of either managing the property yourself as a diy landlord, or you can outsource the day-to-day property management tasks to a real estate property management firm. Factors that can influence your decision are the size of the property, the amount of personal time that you can dedicate to managing the property, your property management knowledge and skills, and your temperament for the job.
   
   If you find that managing the property yourself "is not your cup of tea", then hiring a property management firm is your alternative. Property management firms typically charge a percentage of the rents collected as their management fee. But beware - not all property management firms are created equal. There are plenty of unethical firms in the property management business. They'll be glad to place a poorly screened tenant into your vacant apartment, just to collect a quick "one month's rent" commission for filling the vacancy. Then shortly thereafter, all sorts of problems with the tenant begin, disrupting your rental operation until the tenant is evicted.
   
   So, if you choose to hire an outside management firm, exercise caution and investigate their credentials and client track record thoroughly before hiring them. The time you spend checking their history could save you plenty of grief and money in the future. 
    
2. Rental Income of the Property - In an attempt to inflate a property's sales price, an unethical seller can falsely overstate the rental income that is actually produced by the property. To prevent this and verify actual rent levels, it is best to mail "estoppel letters" to all existing tenants occupying the property. The tenants will then have to respond by providing written confirmation of their actual rent levels charged as well as other facts about their rental or lease agreements. These could include security deposit amounts that will have to be transferred to the buyer by the seller upon sale of the property.
3.  Operating and Utility Costs - The operating, or carrying costs of a rental property directly affect its cash flow on a "dollar-for-dollar" basis. Simply stated, a cost reduction of one-dollar for an investment property results in an increased cash flow of that same dollar for the property. Since operating costs have a direct influence on a property's cash flow, it is critical for an investor to verify all such information supplied by a seller before purchasing his or her property. Unethical sellers may understate their property's actual operating costs in an attempt to inflate its sales price.
   
   If the tenants occupying the property pay their own utility costs, it is wise to get an idea of what those costs are. When these bills are combined with the tenants rent, the result can determine the overall "affordability" of the property that is based on the average incomes of renters in the area. Utility costs that are too high can result in high tenant turnover. This may justify lower rent levels for the property.
4. Handling Vacancies - A proper plan (or protocol) for filling vacant apartments can really lower vacancy rates for the rental property and improve its cash flow. If the rental property is located on a highly traveled road and gets lots of exposure, then a simple "for rent" sign may be all that's needed to attract plenty of potential renters. On the other hand, if the property is somewhat secluded, then a plan for media advertising will be needed to announce the vacancy and attract qualified renters.
5. Distance Factor of the Property - If you're an "absentee landlord", the distance of the rental property from your home can become an important factor if you plan on managing the property yourself. If the property is located quite a distance away, it may become a chore in itself just to get to the property to address tenant issues, perform maintenance, etc.
   
   On the other hand, a rental property that is located within a convenient distance from your residence will make it easier and less time consuming for you to get to the property and carry out your on-site tasks. Over time, this can result in better (and more reliable) management and upkeep of the rental property.
6. Parking / Laundry facilities - Adequate on-site parking facilities can be a significant benefit for tenants occupying the property. The property should have a sufficient number of parking spaces for the tenants in order to provide convenience and safety of their vehicles. If parking is not sufficient, then it's a sure bet that problems will develop with the tenants over the situation, leading to turnover and lost income.
   
   {sidebar id=6}Another significant benefit for tenants is a rental property that has adequate on-site laundry facilities. Tenants will certainly appreciate the convenience of it versus having to lug their laundry to a laundromat each week. Also, a coin-operated laundry facility can provide an additional source of income for the property owner.
7. Investment Goals and Planning - The importance of this aspect of rental property investing could rank it at the top of the list. Simply investing in rental property alone is not enough to achieve your full potential as an investor - it only forms part of the process. To realize your full potential as an investor, you must first establish a set of goals you'd like to achieve. Then a realistic investment plan will have to be developed that will allow you to reach those goals. Such a plan can act as your "blueprint" to investment success.

In conclusion, those are the core issues that should be contemplated before investing your hard-earned money in rental property. Taking the time to do so and adopting this "look before you leap" mentality can certainly increase your level of investment success.