Not all chocolates taste scrumptious; similarly, not all rental properties are profitable. If you want a good return on your investment, you should consider several factors before investing. HomeKasa has several valuable resources that can help you make a rational choice.
There is no 100% guarantee that a rental property will turn out to be profitable. However, as a landlord, you need to check as many factors as possible to ensure that you are purchasing the best option available to you. This article focuses on some key points to consider while selecting a profitable rental property.
Location and neighborhood##
Location plays a crucial role in selecting a fruitful ideal property. Rental property in an affluent neighborhood and a friendly atmosphere offers a greater likelihood of being profitable in the long-run. The area would decide the quality of tenants you are likely to attract. While it may be expensive in the short-term, such properties tend to hold their values better.
A location near a hospital, for instance, attracts doctors, nurses, and other health workers. Likewise houses near university campus attracts teaching staff, university employees and students. They bring in different kinds of tenants as well. While a house near a hospital may attract long-term tenants, the one near the university will likely attract short-term tenants. All in all, location plays a prime role in deciding the type of renters and, thus, the profitability of the house.
Next, look into how much maintenance is required, not just by the tenants but also by you. Everyone likes a luxurious home with lush green gardens, but is such a property sustainable in the long run with renters living in it? How much will it cost you to maintain the property every month and how does it impact your break-even point?
For maximum profit, you need to choose a property that is easy to maintain and can uphold its appearance and value. Regular mowing is required if you have a lawn. But weekly pool cleaning is something we all don't look forward to. Painless and straightforward landscaping should be your go-to option. We recommend Xeriscaping the garden or put in low-maintenance slow-growing native plants.
Educational facilities nearby##
School plays a huge role in deciding and attracting a wide range of family-based tenants. If your property is close to a school with good academic standing, the chances of you acquiring long-term family tenants are higher, thus bringing in a steady profit. Let's face it, tenant turnover means more work for the landlord. You have to deal with expenses including repainting the interior. You also have to spend time advertising, find new tenants, and deal with onboarding. HomeKasa offers the best property management software and we are here to help you with these steps.
The tax that you need to pay on the rental property varies by location as well. Naturally, you don't want to invest and then not gain any profit. Check the applicable tax range to enhance your profit margin at the end of the day. For example, Colorado springs charges 7.15%, New Jersey charges 2.44% taxes for properties, and Florida charges 0.98%.
Local crime rate##
Two main goals of real estate investing are monthly profits and long term appreciation. Tenants who can afford to pay well, do not want to live in a shady neighborhood. Families with young kids are the tenant pool who is willing to pay a higher rate for a safe living environment. A well-reputed neighborhood with a low crime rate is your go-to choice - better for the tenants, the more profitable for you. Some research into crime rates and the overall reputation of the locality will help you in evaluating your real estate investment opportunities. Also, check for sex offenders. DRU SJODIN offers helpful resources. A location with a low crime rate holds property values better in the short-term and has better gains in the long-term.
Amenities available nearby##
The surrounding environment is very crucial in attracting the type of tenants that you desire. Access to highways, groceries, restaurants, local gyms, pool, parks, cinemas, and public transport adds to the desirability of the location. Any renter will be willing to pay a slightly higher rent for easy access to these amenities.
Income and expenses##
Ask around the neighborhood and check the average rental pricing. This way, you will get an idea of what to expect before investing in a property. Check rent estimates on Zillow, Craigslist, and call a few listings to get comps. Comps are not just for purchase, they are handy for rent estimates too! Calculate your expenses, property taxes, HOA, etc., and see if the rent covers these.
To be on the safer side, consider a landlord's insurance. Depending on your budget and circumstances, you can decide to include property damage, liabilities, and incomplete rental income. Weigh the two sides and see what is profitable at the end of the day.
Choose a place that is environmentally safe too. Thorough research should reveal natural disaster records and geographical standing too. If the place is more likely to encounter earthquakes, floods, or hurricanes, then avoiding it may be a beneficial option in the long run. While some places flood once every 100 years, others flood often. Even for places that flood once every 100 years, you are required to carry a flood insurance. Earth quake insurance is expensive and has a high deductible. Figure out which insurances you'll get and their costs.
You need to assess the listings and vacancies available very carefully. A vacant neighborhood where the potential tenants can easily secure a property at lower rent will reduce the likelihood of acquiring a profitable rent. The easier it is to find a rental place, the lower is the rent. Generally speaking, larger cities and prime neighborhoods are in high demand.
Rent vs appreciation##
Some locations offer higher rent but they don't appreciate well. They also tend to cost less. Other locations may be expensive and therefore, the rent may barely cover the expenses. However, they tend to appreciate more. You may have to make a choice between the two based on your requirements as well as your financial situation.
Check the further extension and developmental plans in the area, or if the place is soon going to be commercialized. All these factors play a huge role in deciding the long term gain of your investment. If development is under progress or planned, then your competition again becomes high, and the choices available to the tenants would also increase. With increased commercialization, the type of tenants will change and the neighborhood will evolve.
When investing in a rental property for increased profit, look at the broader picture and assess the situation 5, 10, and 15 years from today. Real estate investing is a long-term play. Choose wisely and get started soon. HomeKasa offers the best property management software to manage your investment properties.