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Investing in Rental Properties
Investing in rental properties include buying rental homes - collecting monthly rents and waiting for appreciation, buying commercial properties - leasing it to shops, restaurants etc, buying apartment complex - leasing to tenants and collect monthly rental bills. The choice depends on the individuals and their level of risk and comfort.
Landlord Friendly State
Though there are generally a lot of benefits in investing in rental properties by choosing the property with good rental ratio, choosing a rental property in a Landlord friendly state increases the benefits and reduces the risk of being an investor. Some of the Landlord friendly states are as follows.
Texas
Alabama
Indiana
Pennsylvania
Kentucky
Georgia
Illinois
Arizona
Ohio
Florida
It is advisable to research the property well before investing as the rules and regulations, limitations may vary depending on the location as the individual city, county. HOA of the property may have certain covenants and conditions even though they are in a Landlord friendly state.
Benefits of investing in Texas
Affordable Property
Texas is one of the states where the properties are in a quite affordable range when compared to other states. Rental yield is the income generated from your investment property by calculating the difference between the sum of overall costs on a property and the rent received from the property. Understanding and calculating rental yield helps gain a good perspective on knowing the investment potential of the rental property. It also helps the investor to choose the best rental yielding property by comparing the property values with respective rental yield ratios and make a wise decision.
It can also be called as rental income calculator or cash flow calculator. Understanding rental yield concepts are important to create a successful investment strategy. It helps the investor to track on the investments that are over performing or under performing on their Rental Portfolio.
Property Tax
Texas doesn't have any State income tax, but might have local taxes such as city, county, district taxes collected. Texas uses a county appraisal to maintain the appraisal value uniformly. It has a single appraised value though it is taxed in city, county, district levels. The property taxes are usually calculated based on the current value of the home. This might make a huge difference in an investor point of view while calculating the ROI.
Eviction Process
Eviction process, though it is not a simple process to go through, the property owners must be aware of the potential risk. Texas takes the Leasing violations very seriously and has low tolerance against the tenants who breach laws and don't follow the rules. When a tenant creates problems or are hard to be removed from home, eviction process is usually executed. Though there is a presence of Eviction process in all the states, some states make the process easier than the others.
Steady Population Growth rate
Texas is considered as one of the state in steady population growth rate. Though the population and growth rate is steadily increasing in the state as a whole, it may not happen in all the counties. It is important to research the area well before investing as the growth rate is influenced by number of factors which might be seen higher in some counties compared to other.
Landlord and Tenants rights
Landlord Rights
Security Deposit - Texas doesn't have a limit on how much the landlord may charge for the security deposit, though the deposit may be needed to be returned to the tenant within 30 days after tenant's departure from the property.
Late fees and Nonpayment - Texas has strict Late fees and Nonpayment which is highly favorable to the Landlords.
Ability to Enter - Texas allows the landlord to enter the property usually with a 24 hour notice and for reasonable conditions like to fix the repairs requested, post an eviction notice, cases of emergency, routine inspections etc.
Tenant Rights
Withhold rent - Tenants have the right to withhold rent in cases where the landlord refuses to make repairs or doesn't make repairs in a timely manner.
Quiet Enjoyment - Tenant has the right to enjoy their property in peace. Landlord may not evict the tenant without a valid reason and tenants may complain if they are unable to enjoy their property in any anyway that disrupts their peace.
Rent control
Rent control or rent stabilization is the process where the landlords are expected to follow certain rental limits. Texas doesn't have rent control in most of the areas. The landlords have the right to charge the rent as much as they wish. Though it might sound as if the law is against the tenants, the scenario might play out in two different ways. In the favorable condition, the landlord has the right to increase the rent as much as he wants and there are no rules against it, But in certain cases in certain states landlords are unable to raise the rents even to meet the inflation or increased maintenance costs, tax and insurance rates etc. This might be an unfavorable condition to the landlord.
Registration and licenses
Many states require License and registration to be a landlord to actively rent their properties. Though the process may be simple in most states, it still costs a lot of money and time which might be a hassle to some. It is advisable to check the local jurisdictions as the rules may vary and may need a rental license to rent properties and they are usually renewed annually for a fee.
Competitive market
Texas is one of the states with a high competitive market, so it is wise to research the property and most importantly the location before buying. The rental market in Texas is considered to be highly demanding due to factors such as increased job opportunities, population growth, affordability etc. In spite of the increasing demand, asking prices and the rental returns are still reasonable in most areas of the state.
Investment Returns
Gross Rental Yield
Gross rental yield is obtained by calculating the annual rental income against the value of the property. Annual rental income is calculated by multiplying weekly rent by 52 or Monthly rent by 12. The value of the property represents either purchase price of the property or the current market value of the property.
Net Rental Yield
Net rental yield is a much precise way to calculate the rental yield as it includes all the operational costs and acquisition costs involved in purchase of an investment rental property. Net rental yield is calculated by taking into account of all the costs that are involved in buying rental property. Operational expenses vary widely depending on the location, age of an investment property, Insurance, Infrastructure, Vacancy rates etc.