Top 10 Features Of A Profitable Rental Property

Choosing the right rental property in the right neighborhood can be a great way to diversify your investment portfolio. Whether you’re saving for retirement, to send your kids to college, or you don’t want all your money in the stock market, real estate investments can be a great way to achieve your goals.

Before you invest in a rental property, it’s essential to know the top features of a profitable rental property, including the right neighborhood.

Here’s what to look for in a rental property.

The Top Features Of A Profitable Rental Property

1. A Financially Worthy Property

Just because you can buy a rental property doesn’t mean it’s worth it. You won’t know just by looking at a property, though. You need to know its condition, value, and the cost of any work it may need.

You should also know the monthly rent potential. If the property already has tenants, this is a manageable number to determine. If not, do your research. Find out the average rent in the area as well as the demand for rental properties.

To determine if a property is worth it, consider these two thresholds:

• One percent rule - If you can rent the property for 1% of the purchase price, it’s generally a ‘good’ deal. For example, if you pay $200,000 for a property and can rent it for $2,000, it passes the one percent rule.
• Fifty percent rule - Look at your total operating expenses for the property. Are they 50 percent or less of the rent you can charge? If so, it may be a profitable rental property. If not, you may want to look at other properties.

Figure out your bottom line or what would make a rental property worth it for you and do your research. Know all aspects of a property and its potential before investing in one.

2. A Great Location

Do your research to determine the best places to invest in rental property. You want an area with a large pool of renters, which means an area attractive to them. Renters want convenience, including nearby shops, schools, and other amenities. 

As you research locations, look at the local regulations that landlords must follow and determine how they impact your investment. Remember, you don’t have to buy a rental property in your area only - long-distance investing often provides much greater opportunities, including properties at lower cost and higher profits.

3. Affordable Property Taxes

As the landlord, you’re responsible for the property taxes, and they become a part of your operating costs. While you shouldn’t always avoid areas with high taxes, pay close attention to the tax rates.

Are the high tax rates worth it for the area? For example, if you can buy an attractive property and earn a decent profit, then areas with high tax rates may be worth it because it will increase your bottom line. But, if you invest in an area with high taxes, with many you could be on the losing end of the investment without the large profits.

Do your research to determine the best area to invest with the most affordable property taxes.

4. Quality Of The Schools

If you’re investing in rental properties meant for families, the school quality in the area plays an important role. If you want to keep your property occupied, you should invest in an area with top-rated schools.

The school ratings also affect the home’s resale value. While you aren’t thinking about selling a property the minute you buy it, resale value should always be on your radar. Homes in areas with highly rated schools often sell for much more and sell faster than areas with poor school ratings.

5. Adequate Security

Renters pay close attention to the crime rates when they look for properties. If you buy a rental property in an area with a high crime rate, it will be harder to keep filled with tenants. Most people won’t willingly choose to live in an area where the crime rate is high.

Besides the crime rate itself, look at ways the local city or county keeps the area secure. Is there a good police presence? Are there street lights, local police departments, and other security features in place?

Renters look for the areas they feel the most secure, so make sure to do your research about the local area’s crime rates and how the local government deters them.

6. A Good Job Market

Renters often go where the jobs are, and if the area you invest in doesn’t have a good job market, you won’t find a large pool of renters. Follow the news and watch when companies move to different areas - that’s where you’ll find the largest pool of renters.

Even without tracking where companies move to or build in, watch the area’s job market. Keep an eye on the unemployment rate and notice what type of people live in the area. Are they business professionals, blue-collar workers, or executives? Are the companies in the area the type that transfer employees often? That’s where you’ll find the most renters. People that move frequently tend to avoid buying a house and instead rent.

7. Adequate Amenities

Before you invest in an area, find out what amenities are around. Think about what your prospective renters would want.

If you’re targeting families, they’ll want local parks and recreation, close shopping, excellent schools, and options for church. If the homes you’ll invest in are smaller and better for couples, think about nightlife, restaurants, and public libraries.

Visit city hall online and see what the area has to offer. This will tell you the type of renters you’ll find and if the kind of home you plan to buy will perform well in that market.

8. Good Average Rent In The Area

Looking around at the average rents at homes around you will tell you if a home is a profitable rental property. If you know the area is struggling, it’s not the best time to invest there, even if you can get a great deal on the property.

Do your research, or use a platform like Roofstock Marketplace to see the potential rent and the history of the rent at the home. If you’re buying a turnkey property, the home will already have tenants in it - just focus on the rent history, and you’ll make an informed decision. 

9. Look For Homes With Tenants In Them

The best rental property to buy is the one that’s already rented. If you can buy a home with tenants in it and the home in good condition, you don’t have to worry about investing more money in the property, and you earn cash flow from day one.

Turnkey properties are becoming more popular today, and it’s easy to see why. You don’t have to worry about finding properties and then finding tenants. You kill two birds with one stone, making investing in rental properties a cinch.

The only other factor you have to worry about is who will manage the rental property? If you hire a property management company, a platform like Roofstock can match you with the right company. 

10. Few Vacancy Listings In The Area 

While this doesn’t have anything to do with the property you buy directly, it affects your investment. If you choose an area to invest in that has many vacancies, it may be hard to fill your home with tenants.

Even if you buy a turnkey property with tenants, you need to know the area will continue to have a solid rental market. If your current tenants don’t renew their lease, you’ll need to find new renters. Make sure it will be possible in the area you invest in.

Image by Arek Socha from Pixabay