A rental property is a great option if you are considering investing in real estate for the long term. Investment rental properties can be very rewarding and exciting when you make the right choice. However, this venture can be daunting for the first-time investor.
The real estate business is tough with land mines that might obliterate returns. So, conduct thorough research before diving in. In this article, we will discuss the most important things to look for when shopping for income properties.
Finding the Best Investment Rental Properties
Always find out the rental property’s viability. The only way to know if it is profitable is by ensuring it meets the rental property profitability criteria. Here are the qualities of a profitable real estate rental property.
Before anything else, the rental property must be financially worthwhile. Find out if the property—in its existing or improved state—is worth spending your cash on.
How much are you going to earn monthly?
What are the refurbishment and repair costs?
These are the questions you need to find answers to beforehand.
The ideal rental property should provide you with at least 12 percent of its purchase price annually as gross rent. Use the one percent rule to determine this.
What is the One Percent Rule
The rule states that the monthly collectible rent must be at least 1 percent of the property’s value. Seasoned real estate investors consider this factor before making their investments.
Plus, bring in a financial expert to determine the best cap rate. This too will help in deciding whether the said property is worth your investment.
Your rental property needs tenants! This is the only way you can earn income from your investment. However, the income amount you receive depends on the community it is in.
Places that attract good clients allow you to earn you more. For example, a neighborhood with working-class family occupants will give you better profits than one dominated by college students.
Too many vacancies in an area mean that it is unattractive because of possible factors, such as crime. Investigate a specific market with the help of a local real estate agent to find out the reason behind the abundance of rental properties. This is also one feature of the best rental property investment you must remember.
Secure and Safe Neighborhood
Security is critical when investing in rental properties. No tenant will knowingly move into a neighborhood with high crime and burglary rates.
Theft, burglaries, and car theft are the most reported crimes in the US. Potential renters want to have the peace of mind that their families and belongings are safe. So, select a neighborhood that offers adequate security.
Some things to look out for include:
- Constant patrol police presence
- Local crime data reports
- Proximity to the sheriff’s department
- Street lighting
Availability of High-Rating Schools
Highly rated schools in an area are also an indicator of the investment property’s profitability. Education facilities determine whether more tenants will move into an area.
The best properties should be in areas with close proximity to high, middle, and elementary schools of good standards. School quality information and ratings ensure that potential tenants have easy access to the best learning institutions.
Easy Access to Rudimentary Facilities
Investment rental properties thrive in areas that have good access to public facilities and leisure centers. Of course, these places have things that your tenants would need.
These facilities include, but not limited to:
- Medical facilities
- Shopping malls
Services your potential tenants would want include:
Convenient access to these facilities and services will reduce your vacancy rate tremendously.
A critical characteristic of the ideal rental property, and an indicator that it can give you the best return on investment (ROI), is the price you are paying for the property.
New investors should look for modestly priced properties as they rarely have savings and have access to fewer financing options. Cheap real estate property is easy to finance, so you experience less pressure from lenders.
Click this link, https://theshorttermshop.com/invest-in-rental-properties/, to find out more about the amount of money you should invest in a rental property.
Knowing When You Are Ready to Purchase a Rental Property
Purchasing an investment property is a different game from buying a family home. Before investing, make sure you meet these requirements.
You are financially stable
Rental properties require a high financial stability level. Many lenders require the borrower to deposit at least 15 percent in an investment property. Plus, you need to have the property cleared by inspectors before allowing tenants to move in.
Set aside money in your budget for the initial property costs, such as those for the down payment, inspection, and closing. As the rental property owner or landlord, you must complete critical repairs fast to prevent expensive equipment overhauling tasks later. In some states, tenants may legally withhold rent payments if the landlord does not fix broken home utilities on time.
The ROI is favorable
Today’s market is providing real estate investors great ROI, but savvy investors will calculate the expected ROI before making a purchase. The process involves:
- Estimating the annual rental income
- Calculating net operating income
- Dividing the net operating income by the total value of the mortgage
A 3 percent ROI is a great indicator of a solid rental property.
You have time for property management
Managing a rental property can consume a sizable chunk of your time. You need to:
- Put up ads for your available space
- Interview all potential tenants
- Run tenant background checks
- Ensure tenants are paying their rent on time
- Perform property maintenance tasks and make timely repairs
You need to do all this while ensuring that you don’t invade your tenant’s right to privacy. This is a legal standard in some states that prevents you from dropping by your property unannounced without giving at least 24 hours of warning.
Before buying rental properties, make sure you have the time to monitor and maintain them.
The Bottom Line
Owning investment rental properties can be a hugely profitable venture or a financially draining mistake. It depends on how you go about the process. You cannot make money unless you are investing in a profitable rental property in a real estate market that’s growing. Take your time and find out more before putting your money on a specific property!
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