Look For These 7 Features for a Profitable Rental Property
So you want to make a few extra bucks renting out an investment property? Good idea. There’s plenty of money to be made in the real estate market. But the property you buy and the area it’s located in can make or break your profits. There’s a ton of work to be done between your initial decision to invest in real estate to actually purchasing a rental unit.
Make sure to look for the following 7 traits of a profitable rental property before investing.
1. Number of Listings & Vacancies in the Neighborhood
Be wary of areas that have a really high rate of vacancies and listings. This could be a red flag. Either the area is going through a seasonal cycle, or the neighborhood has simply gone down the tubes. If you do decide to try your luck on an area like this, make sure you’ll be able to financially cover periods of vacancy in your unit.
Just like listings, vacancy rates can give you a sense of how easily you’ll be able to attract potential tenants to your property. Keep in mind that higher vacancy rates typically mean lower rental rates – the more supply out there, the more renters have to choose from.
2. Property Taxes
How much property tax you’ll have to pay will depend on the municipality that the property is located in. These fees aren’t standard across the board, so you’ll have to find out exactly much a property that you’ve got your eye on will cost you in taxes.
High property taxes might not necessarily be a bad thing, since this can be an indication of a desirable area. But you have to make sure you can afford to cover these costs without landing in the red every month. You can get this info off of your realtor, or from the town’s assessment office.
3. The Going Rental Rate in Your Area
The money you collect in rent checks is essentially what’s going to cover your expenses and generate a profit. For this reason, it’s imperative that you find out what the average rental rate is in your area of choice. If the going rate isn’t enough to even cover your carrying costs, look elsewhere.
You’ve got to research a specific neighborhood deeply enough to gauge where the area will be in the next few years. Even if you can afford the property today, you might not necessarily be able to afford it in a few years after major improvements are made that spike the property taxes or HOA fees.
4. Crime Rate
Who wants to live in an area that’s always featured on the news for the latest in criminal activity? Do yourself a favor and scope out the level of crime in a neighborhood by getting some accurate stats from the police, the public library, or online.
You want to keep your eye on things like petty crimes, violent crimes, and vandalism rates. How often you see police cruisers roaming the area might also give you an indication of the type of neighborhood you might be buying into.
5. Future Development
If there is future development planned in your neighborhood, this could be a good sign of a solid growth area, which will benefit the value of your property in years to come. However, just be careful for certain developments that might harm the value of surrounding properties – including yours.
Such developments could include major highways abutting properties, low-income housing, or simply a loss of green space. In addition, any new condo buildings springing up could also mean added competition against your rental unit.
6. Schools and Employment Opportunities
If your tenants are young families, they’re going to want to have schools located somewhat close by to the property they’re renting out. In addition to proximity, the schools themselves should be decent. No parent is going to want to move into an area that’s in a district zone that will require them to send their kids to a school with a bad reputation.
In addition, locations that offer nearby employment opportunities will also be more attractive to working tenants. The US Bureau of Labor Statistics will have information about how a certain area rates as far as employment opportunities are concerned. If a new company is announcing their development of headquarters in a particular area, this could attract a flock of workers, thereby making your property more likely to be rented out for a decent price.
7. Amenities
People want to have certain amenities within reach of their dwellings. Things such as supermarkets, shopping malls, parks, public transport hubs, restaurants, and other perks will attract more renters. If they can walk to such amenities, even better.
When it comes to real estate, location is key. The right blend of private properties and public amenities can make your unit more attractive, and higher valued.
Every city has its good and bad neighborhoods. You’re going to have to do a lot of legwork and research on specific areas to make sure you’re investing in one that will bring you solid returns.
You’d be better off waiting for the right property in a good neighborhood instead of pouncing on one right away that doesn’t meet all the necessary criteria of a healthy area. To make sure you’ve covered all your bases, work with an experienced real estate agent who can help you find great properties in the right neighborhoods, and avoid the wrong ones.
