There were over 136 million housing units in the United States as of 2017. A number that has steadily increased since 1975 given America’s ballooning population.
Many of those housing units are rental properties and for the landlord, represent a significant stream of income.
Given the current state of the rental market and projections that say the market will grow exponentially in coming years, buying an investment property and renting it out is becoming one of the most attractive investments a person can make.
If you’re thinking of getting involved with renting properties and are wondering how to determine a good rental property, our team has written this article to help.
We have created a list of 9 things you should consider when picking the perfect rental property investment!
1) Job Opportunities
Most people who move to a new place do so with the expectation that they’ll be able to work. Because of that, If you own a rental property in a place that has little in the way of job opportunities, you may be setting yourself up for failure.
Real estate rentals in poor job marketplaces not only fetch a much lower rent price but also come with a higher likelihood of renter delinquency. To protect yourself, analyze local unemployment rates before buying and make sure they’re on par with or lower than national averages.
2) Community Resources
Looking at the amenities a community offers is a great way how to determine a good rental property. People who move into a home are going to want access to things like restaurants, parks, recreation centers and more.
Your rental property’s proximity to those resources will have an impact on the rent you can charge and your ability to retain tenants.
3) Natural Disasters
Rental real estate purchased in places that are prone to earthquakes, tornadoes, and hurricanes can represent a couple of issues for landlords.
For starters, these properties will generally attract tenants who are willing to pay less given that competition will be lower for housing in these more dangerous regions.
Second, as the homeowner, you’ll likely need to take out a costly insurance policy to protect your home from damages. This insurance policy will be a monthly expense you’ll need to budget for when determining your rental property’s profitability.
Understanding the surrounding neighborhood is key to deducing a solid rental property investment. For example, is your property near a university?
If so, you’ll likely have no problem finding tenants but summer vacancies might be an issue.
Is your property in a community that limits or disallows rentals? If so, you’ll want to know immediately.
When purchasing real estate rentals, you’ll want to first walk into the municipality assessment office and ask about tax rates.
Property taxes are set for a community so the rate you’ll be expected to pay should be easy to find out. Be sure to factor in all annual taxes into your monthly rent ask so you’re not unexpectedly coming up short at the end of the year.
6) Rental Rates
Getting the perfect price for your rental property is an art and a science. If done poorly, you could be left with an empty house or at very least be left getting much less than your property is worth.
To make sure this doesn’t happen, it’s advisable to work with a property management group like Westside Property Management or others in your area. Management groups have a lot of expertise when it comes to pricing your rental property right.
To figure out pricing on your own, it can be helpful to inspect other local rental properties on the market. Figure out what comparable properties exist and what they’re charging. Talk to other local landlords for more in-depth information.
The more you understand about the local competition the better you can position your rental property in the marketplace.
7) Consider How the Area Will Change
When exploring how to determine a good rental property, you’ll want to look beyond the now. If the area you’re considering buying in just announced that a major corporation is moving into the area, for instance, prices are likely to skyrocket given that additional economic boost.
In a situation like that, buying a sub-par rental property now could represent an incredible future investment.
Nobody wants to live in an unsafe community. If the local crime rate is high where you’re looking to buy an investment rental property, expect to have a solid insurance policy on hand.
Also, expect tenants who aren’t going to be willing to pay much and may represent a higher likelihood of defaulting on payments.
With your rental property, you’ll want to find great tenants who are likely to stick around for a long time. Families generally represent the best bet on this front as most parents won’t want to displace their kids.
To attract families to your rental property, you’ll want to make sure local schools are excellent. Look into the elementary, middle and high school your area feeds into. Figure out if they’re “distinguished schools” and how they rank against other public schools in the area.
Buying rental properties where schools are noteworthy will lead to outstanding tenants. It will also mean lower crime and more consistency in your income.
Wrapping up How to Determine a Good Rental Property
When figuring out how to determine a good rental property, we recommend running through the checklist above.
Understanding where the property you’re considering falls within the spectrum of each of the above factors can tell you a tremendous amount about the success you’re likely to experience investing in real estate rentals!
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