What to Look for in A Profitable Rental Property

März 05, 2020

Choose the Best Rental Investment Property

We’re into the 3rd month of 2020, and this year’s rental market is looking promising. With interest rates dropping, the rental property markets from New York to Florida to California could heat up.

If you’re a landlord/owner on the hunt to buy some great rental houses, condos or apartments, review our rental property buying tips below. With the US dollar declining along with interest rates, rental properties may become less expensive for foreign buyers. With that competition in mind, you’ll want to be more strategic in finding the right properties for you this spring.

If the rental market suffers a downturn, rental property prices may fall a little, but there is optimism that the US economy will come back the summer. However, due to the severe lack of housing for sale, including rental homes and apartments in almost every city and state, bidding on properties might be intense this year.

UBI Survey: apartments in class B buildings in working class neighborhoods are hot

Owners are Hanging Onto Their Properties

Although transactions are down due to property owners hanging onto their units (low mortgage rates, nowhere to move to), rent prices may not fall. Such stubbornness may increase property prices in 2020. In February, major research providers reported only minor rent price reductions so your cash flow looks good.

Rent Prices picking up steam this year? Screenshot courtesy of Zillow.com

Price Dips in Spring Could be Your Cue

If rental property prices take a dip, you might think this is the opportunity to buy. If sellers want to give up some of their equity, then there will be plenty of private and institutional buyers ready to take advantage.

Here’s our list of the top criteria to guide your purchase of a rental investment property.

Top Selection Criteria for Rental Properties:

Great Neighborhood – Check for neighborhood ratings such as walkability scores, transit availability, commute times to work, peace and quiet, parks and recreation areas, conditions of roads, proximity to business districts and highways, along with distance to schools. The appearance and tone of the neighborhood should be high on your priority list if you intend to keep the rental property for many years. Check out neighborhooodscout.com
Type of Rental Property – From tower condos, to old apartments, to build to rent new construction homes and townhouses, along with student housing, to short term vacation multifamily buildings, you’ve got selection. 1, 3, or 3 bedroom units offer different returns and have different initial financing. Learn more about types of rental property and finding high cash flow properties.
Cap Rates – comparing property prices to rent prices is standard and key practice for landlords. It’s the most important KPI, yet other calculations can help establish your net operating income, and other key financial signals. Learn more about Cap rates.
Property Taxes and Rent Controls – Each city or state has its own tax advantages. In some states such as Texas or Florida, there may be no sales taxes, yet property taxes might be hefty. Of course, states with rent controls can make them very unattractive in comparison to those without controls. Rent controls can seriously hamper your ROI and raise your investment risk. Learn more about rent controls.
Number of Listings – Check with one of the major apartment listings websites such as Apartmentlist, Zumper, Padmapper, NAR, etc to gauge the availability and comparable prices of competing rentals. See more on apartments for rent.
Nearby Commercial Developments – the local civic or municipal office will have info on planned business, housing, or retail developments in the area (both good and bad). You can determine if any of these will create demand for your rental (a new college), or instead reduce the quality of the neighborhood (big sports stadium).
Schools – Millennial renters increasingly have kids or are preparing for them. They’ll need to be close to schools for convenient transportation every day. And quality schools are in high demand.
Local Job Market – nearness to jobs and CBDs is a big factor for renters. Renters tend to move toward their place of employment, and if the job market is growing in that region, you’ll have less vacancy and cash flow worries.
Crime and Safety – crime is down all over, but safety is always a concern to renters. Check out neighborhoodscout.com for a rating of the threat. You can check out police report maps to gauge harm.
Amenities – Amenities are important to attract tenants and get them signed to a lease. The nearness of restaurants, shops, libraries, sports centers, grocery stores, and big retail outlets all play a role in renters lifestyles. On site amenities include in-suite laundry, pool and hot tubs, gyms, dishwashers, free wifi or cable, and digital services including online property management software are appreciated by the majority of renters.

From high rent prices and high cap rates to lifestyle to ROI to sustainable cash flow, the more of these present, the more likely this property will produce for you.

After you’ve chosen your properties, you’ll want to create a great renter experience for them. This is how you keep your tenants in lease and happy to pay their rent every month. Discover the advantages of property management software in 2020.

The power of positive rental management is in your hands. We recommend you demo the ManagCasa Property Management Platform now. Do a comparison with Buildium or Appfolio, and you’ll see why SMB landlords choose ManageCasa.