Oakland is emerging as an extremely attractive rental market for a lot of investors, especially investors who want to own rental property in California without the high price tags found in markets like San Francisco and Los Angeles. Oakland offers a lot of opportunity. Rents are on the rise, the local economy is strong, and home values are seeing dramatic increases.
Buying the right rental property is the key to a successful and profitable investment experience, and sometimes it’s not always clear whether you’re looking at a good investment or a potential mistake.
While the right rental property acquisition will depend largely on why you’re investing and what you’re hoping to achieve, there are a number of things that will tell you right away whether you’re considering a profitable rental home.
Establish Your Own Investment Goals
No two investors are exactly alike, and the right home for one buyer might not be the right home for you. Good decisions start with good investment goals. Establish what you’re looking for and why. This will drive how you approach the market and what you look for specifically when you’re choosing the best possible property to buy.
We always appreciate working with investors who have put some thought and effort into establishing investment goals. These will change over time as you grow your portfolio and think about different options for what you should buy. But, you don’t want to make an investment without knowing what you’re looking for. If a property matches your investment goals, it’s probably a good investment.
Oakland Real Estate and Location
Location matters. This is not news. Everyone who invests in real estate understands the importance of location, especially when we’re talking about rental properties. You need to think about the neighborhood from the perspective of your future tenants.
Tenants will want to rent a home that’s close to good schools and within a few minutes of shops, restaurants, grocery stores, and other conveniences.
A well-located rental property will bring in high rents and reliable tenants, which leads to positive cash flow and an impressive return on your investment. You know you’re looking at a good investment property when it’s well-located.
Buy a property in a neighborhood where people will want to live. In Oakland, that could mean an older established neighborhood or a new construction community with amenities and an HOA.
When we talk about location, we’re also talking about safety. Tenants will stay away from neighborhoods with rising crime rates, abandoned buildings, and unsafe conditions. Think about safety when you’re investing. Will you feel comfortable when your property is vacant?
Property Condition: Avoid the Fixer Uppers
You can spot a good investment property by its condition and the amount of maintenance you expect it will require as you’re renting it out.
Think about the work that needs to be done to initially prepare it for the rental market. Have a complete inspection before you close the deal, and make sure you’re willing (and able) to spend what you’ll need to spend in order to make the home habitable, safe, and attractive.
You’ll also need to think about long-term planning. Some of the most expensive repairs you’ll eventually make include:
- A new roof
- New appliances
- HVAC repairs and replacements
- Plumbing problems and leaks
A well-maintained property will attract stable, long-term renters. While it would be great to purchase an investment with some attention-grabbing features like granite counters, bamboo floors, and garden tubs in all the bathrooms, these things will not matter nearly as much as whether the foundation is strong, the plumbing is up to date, and the insulation is new.
Your best investment property is probably not a fixer upper.
There’s an entire investor class that focuses on investing in run-down and distressed properties. When you’re trying to identify a good investment, however, you want a home that’s already in reasonably good condition. You want to get your property to the rental market quickly. You don’t want to spend a lot of time and money getting it ready for tenants.
Consider how spending time and money will impact you financially. You also have to think about the delay in getting the home on the market. You won’t collect rent right away. It may take months.
A well-maintained rental home that only needs some cosmetic upgrades is your best option when you’re looking for a good Oakland investment property.
Measure Cash Flow and ROI against Expenses
You’re looking for a property that’s going to make you money.
- Income
To choose the right rental investment, you’re going to need some kind of an idea about how much money you’ll earn in rent and how much the property is likely to appreciate in value over time.
You’re not always going to see strong returns right away, and that doesn’t necessarily mean it’s a bad investment. A lot of investors are more interested in long-term gains instead of immediate cash flow. Properties in Oakland, California will see rising values and strong appreciation.
Remember that you can take steps to help your property earn more rent and ROI. Upgrades and improvements can help you charge more in rent. During each turnover period, you’re likely to put new paint on the walls. You might upgrade the floors and install new appliances.
Think about how much your property will be worth when you are finally ready to sell in 10 or 20 years.
That appreciation potential will tell you whether you’re making a strong investment. All land is going to appreciate a little bit over time, but you want an investment that will increase in value more than the rest. This goes back to property location. It also helps when you have preventative maintenance plans in place and you spend time and resources protecting the condition of your investment and growing its value.
- Expenses
You’ll know you’ve found a good investment property when you can be sure you’ll earn short-term income through rental payments and long-term returns through appreciation and increasing values.
But there will also be expenses that you need to factor into your purchase.
You’ll need some good budgeting in order to decide whether a particular property is right for you. Plan for marketing, maintenance, professional property management, vacancy, and other fixed and variable costs.
When you’ve identified a potential opportunity, try to get an idea of what these fixed expenses will be:
- Mortgage
- Property taxes
- Homeowner’s insurance
- Property management fees
- HOA fees (if applicable)
- Preventative services such as landscaping and pest control
Variable expenses will almost always be more challenging to predict. These will be:
- Unexpected or emergency repairs
- Vacancy costs
- Turnover costs
- Normal wear and tear
Don’t forget that you may run into really expensive situations like evictions.
A good investment property will allow you to at least identify where the most of your money will be spent.
Is the Property Occupied with Tenants Now?
Do you want to buy an empty property or a property that comes with tenants?
This is something you’ll need to consider, and it will impact whether a particular investment property is right for you.
The benefits of an occupied property are:
- You already have a tenant in place.
- Cash flow is immediate upon taking possession.
- You can look at the tenant’s history of rental payments and maintenance requests to establish how much you’ll likely earn and spend.
There are drawbacks, too. What if it’s a tenant who has been historically late paying rent? What if the amount they’re paying is below market?
You’ll have to think about whether you want to buy a home and take on the tenants that are in it. This will drive whether a particular property is the right investment for you.
Work with an Oakland Property Manager to Identify the Right Investment
Working with a team of experts is essential to choosing the right investment property.
When you’re trying to decide if a particular asset would make a good and profitable investment as a rental home, don’t hesitate to reach out to a property manager. A local Oakland property management company that understands the local market can be an invaluable asset.
You might be thinking that you won’t need a property management partner until you’ve already purchased an investment. Our expertise, presumably, will come in when it’s time to lease and manage and maintain the home.
Don’t wait. If you contact a management professional before you buy, you can access our expertise and leverage our professional network and resources.
Property managers can help you determine what you’re likely to earn in rent, whether repairs will be needed to make the home rent-ready, and how much you can expect to spend maintaining the home. We will know if it fits what tenants are looking for and how it will compete in a fast-moving market. We can tell you whether your potential property will be subject to rent control and just cause eviction laws.
Your property manager can even help with vendor and contractor referrals. We can introduce you to insurance agents, legal experts, and brokers.
If you’re ready to invest, contact us at California Pacific Realty. We’d love to share our knowledge and resources with you.
