Investors

10 Attributes Of A Successful Rental Property

From the first decision to invest in real estate to actually buying your first rental property, there is a lot of research to be done. This may be daunting for the first-time investor. Owning property is a tough business and the field is littered with obstacles that can eradicate your returns. Here are the top 10 things I suggest that you look at when considering a property for a rental investment.

Starting your hunt for that home

I would strongly suggest in engaging with a real estate agent who works closely with a property management company to help you complete the purchase of a rental property. The most important thing is to take an unprejudiced approach to all the properties and neighborhoods within your investing range.

Your investing range will be limited by whether you intend to actively manage the property or hire someone else to manage it. If you intend to actively manage, you should not get a property that’s too far away from where you live. If you are going to get a management company to look after it for you, your proximity to the property will be less of an issue.

Top 10 things you should consider

  1. Listings and Vacancies — If there is an unusually high amount of listings for one particular neighborhood, this can either signal a seasonal cycle or a neighborhood that has “gone bad.” Make sure you figure out which it is before you buy. Vacancy rates will give you an idea of how successful you will be at attracting quality tenants. High vacancy rates force landlords to lower rents in order to get the property occupied. Low vacancy rates allow landlords to raise rental rates.
  2. Neighborhoods — The quality of the neighborhood in which you buy will influence both the types of resident you attract and how often you face vacancies. For example, if you buy in a neighborhood near a university, the chances are that your pool of potential tenants will be mainly made up of students and that you will face vacancies on a fairly regular basis.
  3. Schools — Your tenants may have children, so they will need a place near a quality school. When you have found a good property near a school, you will want to check the quality of the school as this can affect the value of your investment. If the school has a poor reputation, prices will reflect your property’s value. Although you will be most concerned about the monthly cash flow, the overall value of your rental property comes in to play when you eventually liquidate the asset.
  4. Employment — Locations with growing employment opportunities tend to attract more people – meaning more tenants. To find out how a particular area rates, go directly to the U.S. Bureau of Labor Statistics. If you notice an announcement for a new major company moving to the area, keep in mind that this may cause home prices to react depending on the company moving in.
  5. Services/Facilities/Amenities — Check the potential neighborhood for current or projected enhancements and all the other perks that attract renters.
  6. Property Taxes — Property taxes are not typical across the board and, as an investor planning to see a return on your investment; you want to be aware of how much you will be paying in taxes. High property taxes may not always be a bad thing if the neighborhood is an excellent place for long-term tenants, but the two do not necessarily correlate.
  7. Corruption — No one wants to live next door to a criminal. Go to the police for accurate crime statistics for various neighborhoods, rather than asking the homeowner who is hoping to sell the house to you. Items to look for are vandalism rates, serious crimes, petty crimes, and recent activity.
  8. Rents — Rent will be a key factor in deciding on a rental property, so you need to know what the average rent in the area is. If working with a real estate agent with no background in property management, be sure to get the advice of a qualified property manager. If the average rent is not going to be enough to cover your PITI (principal, interest, taxes, and insurance) payment, then you have to keep looking.
  9. Natural Disasters — Insurance is another expense that you will have to subtract from your returns, so it is good to know just how much you will need to carry. If an area is prone to flooding, the extra insurance can add up and eat away at your rental income.
  10. Future Development — If there are many new condos, business parks or retail going up in the target area, it is probably a good growth area. However, watch out for new developments that could hurt as additional condos and/or new housing. This could provide competition for your renters.