What differentiates a good investment property from a bad one? Whether you have a vacation rental or a home for lease or an Airbnb rental, there are several things to keep in mind that affect both you (the investor) and the renters.
You have already heard, when buying real estate the most important thing is “location, location, location.” It’s so true. The location contributes greatly to the type of tenants you will get and will impact occupancy rates vs. vacancies. The market you select should be growing with an increasing population and an increase of infrastructure to support growth. Population growth leads to the development of shopping centers, schools, libraries, hospitals, etc. You want to see an increasing demand for housing so your rental income will be consistent and eventually increase. School districts, traffic, amenities, transportation, and crime activity are just some of the factors you should consider when selecting a neighborhood and buying a rental property.
2. Makes Money
When selecting a property, make sure it will give a positive cash flow. Find out the average monthly rent in the neighborhood and subtract your monthly expenses: mortgage payments, taxes, insurance, property management, HOA fees, and maintenance. Don’t forget to include potential vacancies. Do you break even or better yet, is there money leftover? This indicates positive cash flow, if your estimates are realistic.
You also want to buy a real estate investment property that has the potential to quickly appreciate. While you should stay in your budget when searching for a property, sometimes you can get a home below its listing price. Observe the listing and selling prices to understand the true market value, you can also ask buyers to get an idea. To obtain appreciation, you need a property that needs some renovations and will attract tenants willing to pay higher rent. The property should be worth more with the repairs you make in a few years if you decide to sell.
You can calculate these costs by using the interactive investment property calculator on Mashvisor. In addition, you’ll be able to get a better insight on seasonality trends, vacancies, history of occupancy rates and more.
3. Condos or Single-family Homes
Condos are great for beginners in becoming a real estate investor because they require less maintenance. The condo association can help with external repairs while you work on the interior. The downside to condos is condo fees.
Single-Family Homes have an advantage of lower vacancy rates because they usually attract long- term renters, being families or couples. A family or couple usually means financial stability because of dual income. The downside to these homes is having more to maintain and tenants having more demands, as they see it is a long-term home.
Finally, property taxes differ from area to area so determine how much you will be paying to taxes and if it’s still worth the investment.
4. Job Market
As mentioned before, things like schools and amenities bring people to an area. However, one of the biggest influencers of population growth is employment opportunities. People like to live in areas with good job opportunities. If a major company is moving to the area, people will certainly relocate, giving you tenants. But keep in mind, an area tied to multiple industries is much better than a single industry because the property loses value if that single industry shuts down. When checking out the job market, do not just look at the current situation but look at the future potential as well. You should check out the U.S. Bureau of Labor Statistics and talk to the county/city economic development and redevelopment offices.
Finally, the fun stuff!
There are tangible things to think about when renting out a property, especially if it’s a vacation home or being listed on Airbnb. Views and storage space are some of top things people look at when on a property search. Details that give a house character can do a lot for long-term and short-term renters, such as fireplaces. Look for properties that can offer special features like balconies, fireplaces or pools. Are these features popular in your area and will tenants expect to have them?
An income property can be great but stick to what matters most: the location tenants want, what you can manage and afford, and what makes you the most money.
Do you have an investment property? Is it a lease or a vacation home? What things have helped you increase revenue? What are some things you considered before buying the property?