Investing in Santa Rosa real estate can be a smart decision as it has benefits like solid economic infrastructure, residential desirability, and a stable job market. There is also a significant increase of 12% in Santa Rosa rental prices over the last year, which makes the decision even more lucrative.
However, if you are a beginner, you should think strategically while choosing and investing in a property. Your decision should align with current market trends and general guidelines. Considering a few factors like location, capital growth, or rental demand can help you get substantial returns, passive income, tax breaks and equity gains.
To help you through the process, we have compiled a quick guide including all the essential factors you should consider when purchasing an investment property.
A right property in the wrong location may not be a wise investment since it cannot attract potential tenants and may generate negative cash flow. Instead, choosing a popular location for your investment can offer proximity and convenient access to your tenants, resulting in long-term tenancy.
For instance, in Santa Rosa, Downtown Santa Rosa, Historic Railroad Square, Oakmont, Roseland, and Bennett Valley are popular neighborhoods. Tenants prefer to live in these locations as they offer a relaxed atmosphere, healthy living, and proximity to transport, healthcare, grocery shops and excellent restaurants.
2. 1% Rule
In real estate, the 1% rule is a formula for calculating how profitable an investment can be, based on the desired rental income balanced against the cost of owning an investment property. The 1% rule calculates the price of investment property against its gross revenue. You can use a simple formula to calculate rental yield in gross and net terms.
For instance, Here’s an example of a home with a purchase price of $100,000:
$100,000 x 0.01 = $1,000
Using the 1% rule, you can find a mortgage with a monthly payment of $1,000 or less and charge your residents a minimum monthly rent of $1,000. If the home requires $10,000 worth of repairs, you can add the maintenance cost to the purchase price, for a total of $110,00 and multiply the sum by the 1% rule to get a monthly payment of $1,100.
3. Capital Growth
Capital growth is an increase in the market value of the investment property. Looking into the growth indicator for the property in Santa Rosa, the home prices are up by 3.2% compared to last year, and the median sale price in the city is $685,000. You can hire a local property management company like Alliance Property Management to get a sense of capital growth in Santa Rosa.
We can provide a comprehensive overview of the properties, recent trends across the city and demographic information. It can help you build a good picture of your capital gain and allow you to make wise investment decisions.
4. Type of Property
The profit on your investment also varies according to the type of property in which you invest. For example, in Santa Rosa, both single-family and multifamily properties have pros and cons. While single-family properties ensure lower start-up costs, increased value and resale potential and 100% tenant retention, multifamily properties offer steady cash flow, tax benefits and reduced vacancy rates. However, you can choose the type based on priorities, budget and maintenance cost.
5. Age and Condition of Property
The older the property, the more maintenance costs it may require. You will never want to buy a property that will drain your finances through unexpected maintenance costs. Make sure you inspect the property before investing your hard-earned money into it. Consider checking everything, including fixtures, appliances, structural integrity, drainage, HVAC, water filters and plumbing and avoid properties that might require significant renovations or upgrades.
6. Unwanted Expenses
As an investor, you should prepare for a few unexpected costs. Consider the cost of renovations and urgent improvements like roof repair, HVAC replacement, and water heater repair. You can save 20 to 30% of your rental income and use it to manage unwanted emergency maintenance and upkeep expenses.
An investment property can be one of the best decisions you can make to generate revenue. But you need to ensure you have enough guidance and budget to manage your finances that may incur during the property buying process. Alliance Property Management can be your investment partner in Santa Rosa that can provide you with current rental market insight, home prices, risks involved in investment and more.
For more information, reach us at Alliance Property Management.