Real estate can be daunting for a first-time investor as it is a tough field with obstacles that can affect your returns. However, if you have conducted your research, you will find the industry easier to navigate.
Below are important features to consider when looking out for profitable rental properties.
Neighborhood
The neighborhood of your rental property is important to your potential tenant and your profitability.
Most tenants today desire convenience and essential amenities. Therefore, the location of your property should have easy access to these things. A great neighborhood is usually within close distance of schools, local transportation, shopping centers, and others.
Additionally, the neighborhood will determine the types of tenants you’ll get and the vacancy rate.
High-rate schools
Parents desire to give their children high-quality education that will help them in their future endeavors above many other things. For this reason, they would probably avoid an area with a low-quality education system, even if it has other important amenities.
Consequently, the more high-standard schools there are in a particular neighborhood, the higher the property’s value and the more tenants it will attract.
Safety and security
Security is important when choosing a location for your real estate investment.
Tenants desire a safe and peaceful neighborhood where they don’t have to worry about crime of any nature. In fact, no tenant will intentionally live in an unsafe and crime-ridden area. Therefore, you should invest in a peaceful neighborhood where your tenants know and feel that their families and belongings are safe.
Amenities and convenience
Renting a home involves more than paying for the actual physical property. It involves the high-standard amenities in the house and the lifestyle it provides.
Therefore, rental properties are most profitable in areas where tenants can easily access certain facilities and services. These include gyms, medical facilities, restaurants, movie theaters, social centers, shopping malls, and services like telephone, internet, water, and electricity. They also include proximity to public and service buildings and public transport connections.
Property value
The main aim of owning a rental property is to generate income through rent. Therefore, you need to determine whether or not the property is financially valuable before you pay for it.
To do this, consider the following as related to the property.
The one percent rule: If the potential annual gross rent is a minimum of 12% of the property’s purchase price, consider buying it.
The cap rate: Consider your monthly rent and subtract the estimated monthly expenses from it. Then, divide the total by your purchase price. The final figure is your cap rate or your approximate rate of return. It will help you to determine if the property is worth purchasing or not.
The 50% rule: The 50% rule helps you to anticipate the expenses associated with owning a real estate property. It states that real estate investors can plan to spend 50% of their gross income on operating expenses. This will enable you to determine how much the rental property will cost you and the amount you stand to make in profit.
Also, a profitable property will generate a minimum of 1% and 12% of the purchase price in a month and year respectively.
Rental property investment can be a profitable venture or a huge mistake, depending on how you manage it. However, it is impossible to make profits in real estate if you don’t buy a profitable rental property in the right neighborhood.
For this reason, you need to take your time and conduct detailed research before you put your money into any property. Also, you need to consider the features mentioned above.