Do you believe that buying a rental property is the smartest real estate investing endeavor to make at this moment? Rental property can be one of the best investment properties. Whether you are a newbie or an experienced investor, rental properties have a huge potential. Not only is it exciting to run them, but they can turn out to be very profitable if you make the right choices. But how will you find a good rental property?
In this article, we are discussing how to find a good rental property. Investors should consider numerous factors, and our guide should help you to find a good rental property effectively.
4 Features of a Good Rental Property
What is a good rental property? To find a good home to invest as a rental property, you need to look at those key factors. Here are some indicators that can help you to find a good rental property:
- Location – is it close to a big city? Does it have a low crime rate, and is it a peaceful neighborhood?
- Type – single-family houses are an excellent starting point for investors.
- Price – it often happens that cheaper properties end up bringing more profit.
- Tenant turnover – if tenants stay in the property for a long time, that minimizes the turnover and can increase the profit.
These are only basic factors that could assist in finding a rental property suitable for investing. Keep reading to discover detailed tips in each of these areas.
Finding the Beat Area to Buy Rental Property
It doesn’t come as strange that it all comes down to the location in real estate. The situation is no different if you want to invest in a rental property. Finding the right spot for your rental is crucial for attracting tenants and ensuring profit.
Consider an Entire Metro Area Rather Than a City
The first thing to consider is the city where you want to purchase the property. It should ideally be in a large city because the statistics indicate you have access to more potential tenants. According to estimations, renters make around 40% of the cities with at least a million residents. Even if a city has 500K residents, that means approximately 200K of them are potential tenants for your property.
While a big city offers plenty of job and entertainment opportunities, you want to aim for families to be your tenants (more on that below). That is why you don’t necessarily need a place downtown or in the city itself.
Instead, consider the entire metro area. A suburb can be the perfect location as long as there are low crime and a suitable school. However, you also don’t want the city to be far away. A drive to the city shouldn’t take more than half an hour.
The Importance of a Low Crime Zone
Whether the renter is a family or an individual who moved for a job opportunity, one thing is sure – no one likes crime. That is why you should always aim for a zone with low crime. While a crime-free zone might be a utopia, make sure that the crime rate is as low as possible.
Put yourself in the position of the tenant. If you can’t walk down the street at night by yourself, it is not a place to live in, let alone bring the family.
A high crime level is a danger for the investor, too. If your rental property is vacant often, you might face burglaries, vandalism, and other problems. Check the crime rate online and you will find useful crime data pretty easily.
Choose Areas that Works for Families
You have two different approaches here – going for duplexes or triplexes to accommodate multiple tenants or aiming to buy a single-family home. It all depends on your preference and the specifics of the area, but the latter might be a better choice for a beginner investor.
Let’s say that you purchase a triplex rental property. That means that you will see tenants coming and going often. The plus side is that other tenants stay even if one leaves, but the downside is that you might face a high turnover.
A high turnover means that a part of the property stays vacant, which directly affects your earnings. Additionally, transient tenants that don’t stay longer than a few months usually don’t take good care of the rental. The odds are you will handle some repairs and improvements while the property is vacant, and that costs.
Is Renting to Families a Better Option?
On the other hand, let’s imagine that you bought a single-family home. The family has intentions to stay in the property for years, which is why you are negotiating a compromise. It involves you lowering the monthly rental cost while they take care of the property. That could include cutting grass and changing light-bulbs, but also calling the plumber and other professionals when necessary.
The specifics of the deal are up to you, but the important idea behind this is that family will take care of your rental. They will be staying there for years, and they want to feel comfortable. That means long-term tenants won’t stain the furniture (at least not intentionally) or use the appliances the wrong way.
If you want a stable income while investing minimum resources in your rental, tenants who are willing to stay for years are the right way to go. You might profit with transient tenants, too, but you will surely need to invest more time and effort in managing the property.
Tips of Making Your Rental Property Profitable
We already established that a single-family home might be the smartest pick, but what about the property layout? If we are discussing families, you want to aim for multiple bedrooms. The optimal configuration might be four bedrooms, two bathrooms, and a garage (carport) where you can park one or two vehicles.
Tip #1: Turn Rental Property into Multiple Bedrooms
Now, don’t hesitate to implement a bit of creativity here. The fact that you are looking for multiple bedrooms doesn’t mean you shouldn’t check single-bedroom properties. What if you can turn them into multiple bedrooms by making small adjustments?
Tip #2: Rent Your Property at Lower Price for Lower Turnover
Once you set your mind on a specific area, investigate the market. Try to find a medium price range for the desired property type in that neighborhood. That should tell you how much you should pay for the purchase, and if possible, always aim to go lower than the medium price.
Tip #3: Avoid High-end Home for Rental Properties
While we are on the topic, it’s not always wise to go for expensive properties, especially if you are a newbie rental property investor. Experience tells us that monthly earnings from a high-end home could end up being lower than for an affordable house.
That is where operation expenses come into play. Here are two examples:
Example 1
Rent earnings: $3K
Operating expenses: $2K
Net earnings $1K
Example 2
Rent earnings: $2K
Operating expenses: $900
Net earnings $1.1K
As you can see, it is all about the net earnings you make and not about the money you take for the rent. That is why you want to include all expenses you can think of and implement them when calculating your profit. If you have problems setting the monthly rent cost, you can again consider the medium price range in that area. You want to stay on the cheaper end of the scale, especially if that helps find a tenant who will take good care of the property.
Final Thoughts
Ultimately, the best rental property is the one that attracts tenants at all times. That is why you should aim for a neighborhood with a low crime rate but high school ratings. A high number of job and leisure opportunities will help to make the property more attractive. You can also do that by not charging the rent too much – it might be better to lower the price if that means a stable income in the coming years.
Learn how it all works by attending our next webinar.