Today more than ever, people in the US housing market are looking to invest in rental properties as a way to build wealth and secure their future. While there’s no doubt that buying real estate is one of the best investments you can make, not every property you buy will make a profit. An ordinary person might think that any house might make a good rental property, but real estate investors know that it’s not that simple. To find the best rental investment property for sale, there are a lot of things to consider. There are also certain characteristics or features that make up the best real estate investments that you need to know. In this article, we provide a simple breakdown of the features to look for in a rental property for sale to decide if it’s the right one for making money in real estate.
Feature #1: Good Location
This shouldn’t come as a surprise as you must’ve heard the golden rule in real estate investing which is “location, location, location”. The best real estate investment property for sale is found in a good location. So it’s important that you research your real estate market of choice before you try to spot good rental properties. If you’re investing in a top location, it can make up for some shortcomings the property may have. A poor location, on the other hand, will limit what you can charge tenants and, hence, your return on investment. So what exactly makes for a good investment location? Generally, the best places to invest in real estate have the following in common:
- Growing Population: This indicates that people want to live in the area and are willing to pay a premium to do it.
- Job Opportunities: Areas with plenty of job opportunities attract more tenants, meaning that rental properties there will always be in demand.
- Low Crime Rates: No one wants to live in an area where they don’t feel safe, so make sure to look up local crime statistics before even visiting a potential rental investment property for sale.
- Nearby Amenities: You’ll have a small pool of tenants if your rental is in the middle of nowhere. People love to live near good parks, restaurants, public transportation links, movie theaters, etc.
- School Districts: This is an important factor if you’re interested in family-sized homes as this is the first thing that families with children check when looking for a home.
To help you find a good location to buy a rental property, Mashvisor has put together in-depth real estate market reports on major cities across the US where our experts looked at the features listed above to give you a complete market analysis. Check them out:
Philadelphia Real Estate Market Report
Phoenix Real Estate Market Report
Chicago Real Estate Market Report
Austin Real Estate Market Report
Orlando Real Estate Market Report
Nashville Real Estate Market Report
Los Angeles Real Estate Market Report
Atlanta Real Estate Market Report
Dallas Real Estate Market Report
Start searching for profitable income properties in the best real estate markets using Mashvisor now!
Feature #2: Low Purchase Price
The purchase price matters because what you go for will depend on how much you can afford and ultimately, it will affect your return on real estate investment. This means that the best real estate property for sale will come at a purchase price that you can afford. Real estate experts always advise investors to never buy what they can’t afford. If the purchase price is too high, typically, the operating expenses to run the rental property will be high as well. Plus, it’s known that some of the best real estate investments are those bought at a bargain. So even if you can afford to spend more on an income property, it doesn’t mean that you have to.
In order to spot the best rental investment property for sale at a reasonable purchase price, the best thing to do is to compare the property’s purchase price to its market value. As a general rule, the purchase price has to be less than the property’s market value to consider it a bargain. So, do your due diligence to determine the house market value and look for properties that are listed for less than what they are worth.
Related: 6 Best Hacks to Finding Homes Below Market Value for Investment Properties
Feature #3: Good Property Condition
New investors frequently underestimate how the property condition can impact their real estate investments. While some find it tempting to buy a cheap fixer-upper and turn it into a rental property, there are many risks and downsides to this investment strategy. If a rental property ends up needing a lot of work, it can drain any profit you may have otherwise pocketed from rental income. Therefore, the next feature that the best real estate investments share is that they come in good condition. Meaning, they are rent-ready and don’t need several repairs. Investing in such properties means you can find tenants and rent out the property right after buying it. This allows you to start making rental income and cash flow from the get-go!
That is not to say you should never buy real estate property that needs some repairs. You just need to account for those expenses in your calculations and make sure that it can generate a high return on investment once the repairs have been carried out. Another tip for beginners is that if you must make some repairs, try to have them done quickly, efficiently, and on a budget so they won’t impact your rate of return on investment.
Feature #4: High Rental Income
The entire point of investing in rental properties is to generate income from them. As a landlord or a real estate investor, monthly rental income is your bread-and-butter. Hence, it only makes sense that the best rental investment property for sale will generate high rental income each month to allow for positive cash flow. Meaning, you can use the rental income to cover your expenses and still have a profit margin at the end of the month. So, make sure to research the area’s average rent and calculate the property’s potential rental income before putting an offer. How do investors do that?
One way is by using the 2% rule in real estate. This rule states that monthly rent should equal or be greater than 2% of the total purchase price of an investment property. For example, if the purchase price is $100,000, the investment property has to generate $2,000 in rental income in order to say that it makes for a good investment. Another thing that real estate investors do is look at what rental comps in the area are renting for to confirm what rental income they can expect. In other words, they run a comparative market analysis. If you don’t know how a CMA is done, read our Comparative Market Analysis: A How-To Guide for Real Estate Investors.
Feature #5: Low Rental Expenses
The rental expenses that you have to cover can either make or break your real estate investment’s positive cash flow. After all, you calculate monthly cash flow by subtracting rental expenses from rental income. This is why you should always find out the additional costs associated with buying and operating a rental property. If they’re too high, they’ll wash out said rental income. And if you can’t keep up with property upkeep and maintenance work, fewer tenants will want to rent the property – both scenarios will leave you with negative cash flow. Hence, the best rental investment property for sale will have minimal expenses that won’t kill your ROI.
When looking at houses for sale, always ask for maintenance records and average costs. This will help you estimate exactly what you’ll need to pay to keep the investment property running and in good shape. The most common expenses that real estate investors need to include in their calculations are monthly mortgage payments, insurance, management fees, property taxes, repairs, and HOA fees. Experts also recommend using a tool like Mashvisor’s Rental Property Calculator to get more accurate data regarding your rental property’s potential rental income, expenses, and cash flow.
To start analyzing the best investment properties in your city and neighborhood of choice with this tool, click here.
Feature #6: Low Vacancy Rate
This relates more to the location of your income property, but it’s still an important characteristic to keep in mind. Landlords need reliable tenants in order to make money from rental properties. There must also be a good demand for rentals in your housing market that allows you to find said tenants in a short period of time. As a result, you’ll often find the best rental investment property for sale in areas that have low vacancy rates. Fewer vacancies mean there’s a quick turnaround between purchasing and renting. High vacancy rates, on the other hand, mean there’s a high chance your rental property will sit empty and not make money, which puts you at financial risk.
If there’s an unusual number of vacant rental listings near the house for sale you’re thinking of investing in, try to find out the reason. It could be a signal of a seasonal cycle or because the neighborhood is in decline. In either case, a high vacancy rate will harm your bottom line because it’ll force you to lower your rent to attract tenants. Alternatively, low vacancy rates mean higher demand which allows landlords to raise rents and improve their rental yield. This is why you should take the vacancy rate into account to spot the best residential investment property for sale.
Related: What Are the Features of the Best Investment Property?
The Bottom Line
Successful real estate investing starts with buying the right property. It’s your responsibility as an investor to choose wisely and invest in a property that will make you a profit each year. With proper planning and an understanding of the features that make the best rental investment property for sale, you’re ready to make smart investment decisions. And remember – finding profitable rental properties that work for you doesn’t have to be a lot of work. You can find and analyze the best real estate investments each and every time you search for houses for sale using Mashvisor!
To find profitable investment properties for sale anywhere in the US housing market, start out your 14-day free trial with Mashvisor now.