While renting out property can be lucrative, there is no guarantee that investment properties will be profitable. Some investment properties will be more successful in terms of occupancy rates, profits and the quality of the clientele than others.
While tenant screening can help with finding the best renters, considering the following five areas will assist landlords in making the best decisions about their investment properties:
1. The Old Real Estate Adage Applies: Location, Location, Location
Rental unit location can make all the difference in profitability and quality of rental clientele. In some cases, a distance of just a couple of blocks can make a big difference. Consider factors like current rental rates for the area and crime rates carefully.
Research the history of locations as well as their expected prospects going forward. Are municipal improvements coming to the area? What new businesses are expected in the area? All of these factors will influence the impact of location on the success of the rental property as a rental unit of your investment properties going forward.
2. Solid, Reliable Construction
The property’s features need not be overly ornate. In fact, in some instances it can often be preferable for rental units to be basic and straightforward in construction, yet solid and durable. Landlords should have a contractor or inspector verify that all major components of the home have at least 5 to 10 years of solid use left before they will have to be updated, unless they have an allocated repair budget.
When first viewing a property, landlords can check for water damage, foundational issues, electrical issues, window quality and roof and siding integrity as well as tenant property damage. Landlords should find out what recent repairs and updates have been completed and what upcoming maintenance steps will be required for all investment properties.
3. Vacancies and Average Rental Rates
As landlords do their research, they should also assess both what they can expect to charge in rent as well as the average rate of tenant vacancies in the area. Getting a sense of supply and demand can inform a landlord’s decision about whether or not the property will be a wise purchase. High numbers of units with a high percentage of vacancies can cause increased competition and ultimately lower rental rates.
4. Is It Near Quality Schools?
This factor is related to location and can be an indicator of a desirable neighborhood. Good schools often go hand in hand with a pleasant neighborhood, less crime and a more stable housing market in the area. High quality schools also tend to draw in more reliable tenants and will be a selling point down the road if landlords decide to sell.
5. Tax Rate Considerations
Property taxes are an important factor as well and will subtract money from rental profits. Landlords should check the estimated tax for investment properties they are considering and determine if the rental unit(s) will still be profitable. Watch for temporary tax credits that could balloon to much larger amounts down the road.
Investing in rental investment properties could yield significant profits; however, it’s essential that landlords choose the right investment properties for their goals. Screening investment properties for these five features can help with narrowing down the choices of investment properties. Using professional tenant screening for resident background checks can assist with ensuring the right renters are selected to optimize profits going forward.