(650) 347-2020     DRE# 02238872

How to Determine if a San Mateo Rental Property is a Good Investment - Article Banner

When you’re looking for an investment property in San Mateo, how do you know you’re choosing the right rental home? What makes a good investment in this market? 

There is rarely a one-size-fits-all answer.

The right rental investment depends on a number of details, such as:

  • Where you are in your investment career
  • What you expect to accomplish with one particular property and with your entire portfolio
  • How much money you’ve budgeted for the purchase as well as renovations, maintenance, and vacancy

The definition of a good investment property will vary from investor to investor. To know you’re looking at the right potential property for you, it’s important to have a solid understanding of your own investment goals. You also need awareness when it comes to how the market’s performing and what you can expect it to do in the future.  

While the right acquisition will depend on why you’re investing and what you’re hoping to achieve, there are several general signs that will tell you right away whether you’re considering a profitable rental home. 

Let’s take a look at some of the most common indications that the property you’re considering is a good investment.  

San Mateo Real Estate and Location

How well do you understand the nuances of San Mateo and its neighborhoods? Location will play a very large role in whether or not the property you want to buy is a good investment. It has to be well-located and in a desirable neighborhood. Otherwise, you won’t make money from it.

Location is crucial when it comes to investing, and you don’t have to be a real estate expert to know that. 

As you are evaluating rental properties to invest in, you want to make sure the home is in a neighborhood that tenants will want to choose. The well-qualified tenant you’re hoping to attract will be looking for proximity to entertainment, restaurants, recreation, and transportation. They’ll need parking. Good schools.   

Location drives the rental value of your property, the quality of tenant you attract, and the number of vacant days you have to struggle through before placing a well-qualified renter. It’s the first thing you’ll have to consider when choosing an investment. 

Good location is about more than pleasant sidewalks and easy amenities. Tenants are also looking for safety. Think about the neighborhood in terms of security as well. Will your investment be safe while tenants are living there? Will it be safe while vacant? 

Good San Mateo Investment Homes are Rent-Ready

How soon will a tenant be able to move into the home you’re thinking about buying? 

It should be very soon. 

That’s the hallmark of a good investment property; something that is well-maintained and will only require minor cosmetic repairs before tenants are ready to move in. 

Maintaining a home is a big part of investing. If you’re like most investors, you’ve likely budgeted for the ongoing maintenance and repairs that will be necessary, but what about the work that will be needed as soon as you buy? 

Unless your investment goals center on buying cheap homes and flipping them for higher prices, you want to avoid the fixer uppers you’re likely to encounter when looking for a rental home. Focus instead on the homes that are already in good condition and don’t need a lot of expensive work right away. 

When you find a fixer-upper, you’ll love the lower price. But, a lot of time and money will be spent renovating that property. Not only do you have to consider how that impacts 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. 

Instead of committing to long and potentially expensive renovations, look for a property that’s nearly ready to rent out.

Long-Term Maintenance Expenses in San Mateo Investment Properties 

You’ll also know you have a good investment if your maintenance expenses are likely to be manageable. 

This will depend on the age of the property and its existing condition. If the roof has recently been replaced, that’s a win. If the appliances are energy-efficient and were recently installed, you have another win.    

Get an idea of how much it will cost you to maintain the property before you buy it. You’ll want a complete and professional inspection so you know where the trouble spots may be. A well-maintained property will attract stable, long-term renters. This makes a rental property a great potential investment.  

Estimate How Much an Investment Property Will Earn 

Good rental investments will make you money.

To know if you’re investing in the right rental property, you need to know how much money you’ll earn in rent and how much the property is likely to appreciate in value over time. This is where your own investment goals will matter the most. What are you looking for? If it’s equity, you’ll buy a different home than you will if your property is to earn as much rent as possible as quickly as possible. 

Understanding what you’re likely to earn and spend on a property is essential to deciding whether it’s a good investment. We know that different investors use different metrics. Maybe you’re focused on your potential cap rate or the cash-on-cash return. Perhaps you commit to the one percent rule. 

San Mateo is a unique market. The homes here are high-dollar, and that needs to play into your investment plans. You won’t always see strong returns right away. You might not have positive cash flow for the first many years. That doesn’t necessarily mean it’s a bad investment. A lot of investors are more interested in long-term gains instead. Real estate investing is not a great way to get rich quick. You need to invest for the long term, make the right decisions for your property, and really let the value of that home increase over time.

Think about appreciation and don’t forget to consider how you can increase what you earn in rent. Even with many properties in San Mateo subject to rent control limitations, you’ll still be earning more income on an annual basis. Those rising rents will help you earn more on a good investment property, and you’ll earn more money faster. 

Stable, long-term tenants, low vacancy, and property upgrades will help you earn more on your investment. During each turnover period, you’re likely to put new paint on the walls. You might upgrade the floors and install new appliances. That will help you raise your rents.

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. 

Know Your Math and Compare Expense Estimates to Earnings Estimates

A good investment, as we said, will make you money. So, balance what the property will cost against what you expect the property to earn, and see where your return on investment is likely to land. 

Investing in real estate doesn’t come with a cost that’s paid one time. Ongoing expenses will show up every month, every year, and sometimes when you least expect them. Plan for marketing, maintenance, professional property management, vacancy, and other fixed and variable costs. 

It’s not always easy to anticipate every expense. You’ll likely find that some calculations and estimates are off. Try to budget as accurately as you can, and set aside a reserve for any of those sudden surprises. 

Your fixed expenses will be much easier to budget for when you’re considering an investment property. Those costs will include:

  • Mortgage
  • Property taxes
  • Homeowner’s insurance
  • Property management fees 
  • HOA fees (if applicable)
  • Preventative services such as landscaping and pest control

Then, there are the variable expenses, which are challenging to predict. These will include:

  • Unexpected repairs
  • Vacancy
  • Turnover costs
  • General wear and tear
  • Eviction

A good investment property will allow you to identify and estimate where the most of your money will be spent. 

Property Management in San Mateo and Investment Strategy

business meetingIf you’re really hoping to get a professional opinion on whether a specific investment property is a good idea, we recommend that you talk with a local San Mateo property manager. That’s the best way to get an idea of how much you’ll earn in rent with a particular property, what you’ll likely be able to negotiate with the seller, and how you can turn the home into a profitable rental property. 

You’ll access resources and expertise as well as a deep understanding of the local San Mateo rental market, the local tenants, and the local rental values. Your property management partner will know which vendors can help you get the home ready to rent. 

You might be thinking that you won’t really need a property manager until after you’ve closed the deal and you’re ready to think about marketing and leasing the home. Don’t wait. Instead, contact a property management company early – before you buy. You’ll find that you have a deeper understanding of how much rent you’re likely to earn and what those expenses might be once you’re planning a maintenance budget.

We’d love to be the property management company you consult. Our team focuses on positive results for owners and investors like you. Please contact us at Sharevest Property Management.