Good rental properties are an important part of a real estate investment portfolio that allows you to earn while you play, vacation and spend time with your family. But before you buy a rental investment property, what are 3 key financial moving targets that you wouldn’t normally review for a fix & flip?

• Property taxes.

Don’t stop at checking the tax assess or record for both past and current yearly taxes. Also look up articles in the local press and find out what may be coming in the way of future increases.

o A slightacross-the-board increase in the local property tax rate shouldn’t make much difference to you as a rental investor.

o Jurisdictions occasionally decide they need to make up for lost time with a bump of 8% or more on individual properties. That can be a hurtful bite, especially on higher-value property. If the local economy is picking up and real estate values are rising, be prepared for this possibility.

• Insurance

Look carefully at all the coverages and options, remembering the out-of-pocket disaster cost for something that isn’t covered.Ask the seller to provide you with a Home Seller’s Disclosure Report of past claims on this property, available for about $20 through ChoiceTrust.com.

• Homeowner’s association (HOA) dues and assessments.

More and more properties are part of a neighborhood HOA. HOA dues and assessments may well be the most likely source of higher ongoing costs than you planned.

o Talk to the HOA Board President, who usually lives in the development, and who represents the homeowner’s interests to the HOA. The President is (or should be) privy to the thinking of the HOA administration and may be forthcoming with a potential new owner about the probable future of dues and assessments.

o HOA Dues.

The longer the time since the last increase, the steeper the next increase is likely to be. You’ll have little or no say when it happens, so be prepared to survive and thrive with a 10% or 20% increase (not uncommon in some HOA’s).

o HOA Assessments.

HOA’s can level one-time assessments to be paid by HOA members, amounts of thousands of dollars per homeowner. Assessments may be needed to cover emergency repairs, execute major projects, or simply to make up for bad budgeting. The owner of record at the time of the assessment owes, even if they just bought in to the property. Find out the assessment history and also what major association issues have not yet been resolved, from crumbling sidewalks to budget shortfalls.

Due diligence is critical for these potential future cost impacts on your rental property investment. Make a good choice of rental investment and enjoy the ongoing flow of rental income while you swing a golf club or go camping with the kids!

Check out my blog post encouraging a dual approach to investing through both flipping and renting.

Are you pursuing a dual investment strategy of both rentals and fix & flips?

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