Buying Investment Property Investors: Read This Before Searching for Rental Properties for Sale by Nasser Mansur June 9, 2018February 25, 2019 by Nasser Mansur June 9, 2018February 25, 2019 What are the most important aspects to consider when searching for rental properties for sale? In today’s real estate world, rental properties are becoming the most popular type of residential properties that people want to live in. This is especially true among the generation of millennials who find rental properties to be more affordable and more suitable for their semi-nomadic lifestyles. In fact, millennials are quickly becoming the moving force of the industry, and real estate investors are learning to profit from that by meeting the millennials’ demand and to supply them with a growing number of rental properties for them to reside in. This, among several other modern and historical factors, has led rental properties to become the most popular type of properties that real estate investors, both beginner and experienced, are purchasing to take advantage of this new great investment opportunity. However, the popularity of rental properties also means that the market is becoming more competitive than ever before. Any real estate investor who wants to invest in a rental property must consider several factors before deciding on the best qualities to look for in rental properties for sale. For this reason, I have decided to write this short guide about the most important metrics and aspects to consider when you start searching for rental properties for sale. The Main Aspects that Will Determine the Success of Rental Properties Similar to most other types of real estate investments, there are certain aspects that are crucial across all types of properties that you want to invest in and that will drastically affect their performance. These aspects include: The location of the property The seasonality of the property While these aspects will definitely affect the performance of any investment property, whether it is a rental, a fix-and-flip, or a simple buy-and-hold investment, there are a few other aspects that are exclusive to rental properties and that will be an inseparable part of any rental property analysis to determine its potential as a real estate investment. Click here to learn about the importance of the location in real estate investing Click here to learn about the effects of the summer season when owning income properties The main aspects that you should learn about and consider when looking for rental properties for sale are the following: Rental Income Occupancy Rate Cap Rate & Cash on Cash Return Short-Term vs Long-Term Rentals So, without further ado, let’s get into the details of each of these factors and see where you can find them and how they will affect the performance of your property. Rental Income The first and foremost aspect that you should consider when looking for rental properties for sale is the property’s rental income. The rental income of the property is the amount of rent that you will collect from your tenants in exchange for their stay in the property. There are several aspects that will affect the rental income and will determine the acceptable amount that you can ask for your rental property. For example, each market will have its own average and acceptable rental rate. If you ask for a rental rate that is above the market’s average, then your property will be considered too expensive for that market, and the chances of finding tenants who are willing to rent the property will decrease significantly. Other factors may include: Size of the property Age of the property Amenities Number of bedrooms & bathrooms Recent renovations Furniture and appliances Walk score Neighborhood and crime rate Nearby services and transportation These are all factors that should be taken into consideration when trying to determine the rental rate or the rental income that your property can generate before you are able to include it in your calculations. Additionally, when searching for rental properties for sale, you will notice that listing websites will not provide you with info on the amount of rent that the property can generate. Obtaining that sort of information about the property can be a challenge, and it will typically require at least a few months of research and data gathering from the different local sources in order to be able to determine the property’s rental income. Luckily, however, there is one unique source that will provide you with each investment property’s pre-determined and calculated rental income, which can save you hundreds of research hours. This source makes it possible to analyze and compare a large number of rental properties without having to spend significant time on gathering the information and doing the calculations for each property that you want to consider. Want to learn about the rental income of a property or a neighborhood to find the best rental properties for sale? Click here to access our data and analytics and save hundreds of search hours. Occupancy Rate Rental properties are unique in that the amount of profits they generate is directly affected by whether or not they are being rented out. I mean, it makes perfect sense that a rental property will not generate any profits if there aren’t any tenants living in the property and paying rent, doesn’t it? The occupancy rate is a metric that is exclusive to rental properties, and it refers to the number of days throughout the year that a property will be occupied by a tenant. As you can imagine, the occupancy rate of any rental property will have the most noticeable effect on its rental income. For example, if a property has a rental rate of $1,000/month, you can assume that it will generate $12,000 in a year. However, if that property remains vacant for 6 months in a year, then it will only generate $6,000 in that year. This is why it is extremely important to learn about the occupancy rate of rental properties for sale and include them in the property’s rental income calculations before purchasing any property. Similar to the rental income of the property, there are very limited sources that you can use to learn about the property’s occupancy rate, and in most cases, you will have to gather historical data about the property in order to roughly calculate its occupancy rate. However, similar to the rental income, there is a source that is guaranteed to provide you with each property’s occupancy rate as well as its comparable rental income – that is the amount of rental income after factoring in the property’s occupancy rate. Click here to gain access to Mashvisor and learn about the occupancy rate and comparable rental income of hundreds of thousands of rental properties for sale across the United States. Cap Rate & Cash on Cash Return The cap rate and the cash on cash return are the two most common metrics used by real estate investors for analyzing rental properties and determining their return on investment. These two metrics might seem very similar at first, but the difference between them takes place when you want to use a mortgage to purchase rental properties for sale. The cap rate is a metric that tells you the amount of profits that a property will generate in relation to its total value, which is an excellent indicator of the value of investing in a property based on its price. The cash on cash return is a metric that tells you the amount of profits that a property will generate in relation to the amount of cash that you paid from your own pocket, which is an excellent indicator of the value of investing in a property based on the amount of cash that you’re willing to spend on it. As you can see, the difference between the cap rate and the cash on cash return is that the cap rate will not take into consideration the method of financing used to purchase the rental property, as it only considers the property’s total value. The cash on cash return, on the other hand, will ignore the property’s value and will only consider the amount of cash that you paid from your own pocket while leaving out any borrowed money in the process. Both of these metrics are used to analyze rental properties for sale and determine their viability for investing in real estate and the return on investment that they can generate. To learn about the difference between the cap rate and the cash on cash return, and how to calculate them on your own, read this article: Understanding Cap Rate vs. Cash on Cash Return. Same as before, if you’re looking for a website that provides you with pre-calculated cap rate & cash on cash return for each investment property and the averages per neighborhood in any U.S. market, head over to Mashvisor and start using it for finding and analyzing rental properties for sale. Related: How Mashvisor Revolutionized Cap Rate and Investment Property Analysis Short-Term vs Long-Term Rentals The last major aspect that you should consider when searching for rental properties for sale is the optimal rental strategy to use. As most investors know, there are two types of rental properties: short-term & long-term rentals. Short-term rental properties are properties that are rented out to short-term tenants through Airbnb, VRBO, or HomeAway. These properties are typically rented out on a nightly or a weekly basis, and in many cases, they can generate a higher rental income but at a higher risk. Learn about: 3 Major Considerations for Short-term Rental Properties Long-term rental properties, on the other hand, are traditional rentals that are rented out to long-term tenants for durations that range between a few months to several years. These properties are typically the easiest to get into and to manage, and they are less risky and time-consuming than short-term rentals. Learn about: The 8 Most Important Benefits of Long-term Rentals It must be noted that an investment property can be a short-term rental or a long-term rental depending on the strategy that you prefer to use. In order to decide on the optimal rental strategy, you will have to consider a number of things such as the property’s rental income for each strategy, the location of the property, and whether short-term rentals are considered legal in the area that you’re investing in, among other considerations. Related: The Places with the Worst Airbnb Legal Issues To analyze each property and learn about its expected performance based on the rental strategy that you want to use, you would have to analyze the property for each rental strategy separately. For short-term rentals, you will have to gather and analyze the historical data of the property from the different short-term rental websites, such as Airbnb. Alternatively, you can use Mashvisor while searching for rental properties for sale to see the full analysis of each property for both rental strategies, allowing you to compare the two strategies and to determine the optimal one based on the return on investment that it would generate using each strategy. Rental Properties for Sale: Bottom Line If you’re a beginner real estate investor, you might find it extremely challenging to search for rental properties for sale and analyze them based on these important factors. In fact, most prospects of real estate investing often change their mind about investing in real estate because they find it too daunting and difficult to gather all the data, analyze it, and do the calculations on their own. Additionally, these processes will typically take several months to complete. During this time, and if the property had a high potential for profits and is a good investment, there is a very high chance that it will slip away to the hands of another and more experienced investor before you even finish analyzing it. To address this challenge, provide a solution, and to enable beginner investors to compete in this highly competitive market, Mashvisor was created to make the process easier to carry out and to understand. It provides beginner investors with the means to find rental properties for sale, complete with their analytics and calculations, in the least amount of time. Do you want to start using Mashvisor right away? Click here to sign-up to Mashvisor and gain access to our tools and analytics at a generous 20% discount and start searching for the best cash flowing rental properties for sale. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL Cap RateCash on Cash ReturnLocationOccupancy RateRental IncomeRental Strategies 0 FacebookTwitterGoogle +PinterestLinkedin Nasser Mansur Nasser is an experienced content writer with a degree in English Language and Literature. He loves writing about all aspects of the real estate investing business with focus on market and property analysis and the best sources which every real estate investor needs in order to succeed. 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