How to Spot a Good Rental Property Investment?

There are various factors to consider when choosing a good rental property investment. Like any other property investor looking for significant returns, you need to spot the winning qualities of a property before buying it. It must prompt you to say that decisive “Yes, it’s fit for rental.”

Some investors overthink their decision to invest in a rental property, which sometimes results in them not getting deals done. Others get too perplexed with the numbers, causing them to pay more than necessary or back out of the deal. 

This article will help you choose the best rental property for investment by explaining the different factors necessary for your decision-making. 

Location

The location of the property is essential to your investment. It’s one of the hallmarks of a profitable real estate deal. Thus, if you’re going to buy a property, you must think locally. Consider the things that make a location suitable for your rental property investment. 

• Quality Neighborhood. The neighborhood where your rental property is situated determines the types of tenants you’ll have. Say, your apartment is near a university, and your tenants are more probably students or college instructors. In this case, your rental’s vacancy rate goes up during the school season and goes down during school breaks. Moreover, avoid neighborhoods that impose unreasonable rules and exorbitant permit fees if you convert a property into a rental home. Learn more about the area by doing your research before investing. 
• Near Schools. The presence of schools near your rental property affects its market value, especially when you decide to sell it. Thus, consider investing in a property near a quality local school district. 
• Low Crime Rate. Inquire about the crime rate of your target location because this factor can influence the success of your rental property investment. A neighborhood with a high crime rate is a big no for most tenants. Go to your local police to determine the crime statistics of a specific location before investing. 
• Taxes. You should research how much property taxes you’re going to pay for your property investment. Property taxes vary by location, but it may not be a problem if your property is in a quality neighborhood and if you attract long-term tenants. Go to your local assessment office for any tax information. 

Property Condition

The condition of the property is another factor that makes or breaks your investment. Newbie investors commit the mistake of underestimating the condition of the property. You must consider how much it will cost to improve or maintain the property structurally and aesthetically. 

Determine the condition and age of the building to assess how much capital you’re going to spend each month and year. Sometimes, investors shy away from properties that only need cosmetic improvements but can potentially generate significant rewards. Other investors pay a high purchase price to acquire an aesthetically appealing property without considering other factors that can affect their investment. 

Cash Flow

The amount of cash flowing into your rental property is vital for your investment. It’s a no-good investment if it doesn’t generate good income. Keep in mind that cash flow is an indicator of future investment growth. 

Consider working with a trusted property management company to fill the gaps in your rental business. A property manager can help in marketing and maintenance to attract tenants to your rental property and drive significant cash flow. 

Market Trends

Market trends can vary widely, but they can have a significant impact on your property investment. Population growth, employment rate, per capita income, average rent, future area developments, and performance of the real estate market (local and national) are factors to consider when investing in a rental property. 

• Average Rent. Consider the average rental income in the area where you’re planning to set up your rental business. Make sure the income you’ll get can cover property taxes, mortgage payments, and other expenses associated with your investment. Also, research what will be the average rent and property tax in the coming years. 
• Employment Opportunities. If a rental property is in an area where the employment rate is rising, there will be more tenants in it. Research the job growth in your target area before investing in a rental property. Data from the Bureau of Labor Statistics is of great help. 
• Future Developments. Any information regarding present or future developments can help you decide in what area to invest. New construction projects are an indicator of growth that can affect your rental business. Developments can also attract population growth. This means more people and more potential tenants. 

Final Thoughts

Before venturing into rental property investment, you should know how to spot a good property fit for your rental business. Consider factors such as location, property condition, potential cash flow, and market trends. Your choice for your property investment should rest on these factors.