Investing in a rental property can be scary because if you choose to invest in the wrong neighborhood, you could substantially limit your short-term and long-term profits. But with the proper research and knowledge of the area, you can find a great deal on a property that will make you a ton of money going forward.
Taking the extra time and effort to research a property can make a huge difference in your investment, so don't cut corners here.
With that being said, what factors should you consider when buying rental properties?
Keep reading to find out!
The neighborhood you choose to invest in is the most obvious factor to consider. By looking closely at a neighborhood, you can see what type of tenants you will attract to your rental property. Some neighborhoods are filled with families, some are popular among young professionals, and some are for low-income individuals.
You should also consider what could lead someone to rent a house in the area. For example, if you invest near a university, the majority of interest will come from college students. This can pose some problems as you may have more vacancies over the summer, and you'll also have more turnover each year.
Your safest bet is to invest in single-family homes in middle-class areas.
2. Job Market
The job market can speak volumes about the local economy and the quality of the rental properties you're looking at. Higher job demand and growing employment opportunities means more professionals looking to move into the area. This bodes well for you as an investor because it means fewer vacancies and allows you to increase rent prices to meet demand.
Also, if you hear about a popular or large business moving into the area, you can bet on a lot of professionals flooding in as well. Jumping on the opportunity to invest in a property near a popular business can pay off big time.
3. Property Taxes
Property taxes are a huge factor to consider because they will really bite into your monthly profits. However, it's important to note that high property taxes doesn't always mean you should avoid that particular property. Some residents with higher property taxes are well worth it and will earn you enough to offset those taxes. But there are also properties that carry a high property tax but don't offer enough value to be worth it in the end.
The best way to consider property taxes is to just look for properties that you like and that meet your requirements, and then see what you'd be paying monthly towards taxes. Then, weight that cost against the value of the property and you can make an educated decision from there.
One of the first things you should look for when researching a property to invest in is the crime rate in the surrounding area. No one wants to live somewhere with a high level of crime, and the people who do rent in those areas probably won't stay long. This can really drop the value of your property and also cause longer vacancies which costs you a ton of money.
Be sure to research crime levels in the local area. However, if you notice a neighborhood that used to have high crime levels is decreasing at a fast pace, it might be worth a look. The area could be on the come up, which means you might get a great deal on a property that's about to shoot up in value.
If you're looking to invest in a family-sized home, schools should be one of the first factors you consider. Families often look for homes that are zoned for high-quality schools, so this factor alone can really increase demand and reduce vacancies.
You can research online for local school grades to learn more about which ones families will be interested in living near.
6. Local Businesses
The local businesses in an area can speak volumes about the quality of the property you're interested in. Do you notice a lot of fast-food restaurants, chain businesses, and low-quality supermarkets? That's never a good sign of an up-and-coming area.
But if you see a lot of small, unique businesses such as nice coffee shops, high-end restaurants, and organic grocery stored
7. Future Development
If the area you're looking at has a lot of construction going on, or there are new properties being zoned in the area, it can be both a good and bad thing for your investment. On one hand, it shows that there is a lot of growth in the area which means more people will be flooding in. Also, if new businesses are being built, that's always a good sign for investors in the area.
On the other hand, if new homes are being built, it could mean more competition when it comes to finding quality tenants.
8. Number of Listings in the Area
The number of listings in a neighborhood can tell you a lot about the local demand. If there are no listings, it means that neighborhood is probably in high-demand which bodes well for you as an investor, because you can charge more and have shorter vacancies.
If there are a ton of listings for the neighborhood, it could signal that the neighborhood is in decline and people aren't looking to move there. However, it could simply mean that it's the end of a renting cycle so people have recently moved out.
9. Average Rent Price
The money you make off monthly rent payments is a big part of your investment returns, so you need to make sure the average rent price in the area is what you're looking for. If the average rent price is pretty low, it's not necessarily a bad thing, however. For example, if you find a property in an up-and-coming area for a cheap price, investing in it and betting on higher demand in the future can really pay off.
On the flip side, neighborhoods with a higher average rent price can seem really appealing, but they also might cost significantly more and carry a higher property tax.
So it's all about weighing the average rent price against the other factors we mentioned above to find the best value.
Consider These Factors to Find the Most Profitable Rental Property
If you're interested in investing in real estate, you know that the key to higher profits lies with the rental property you choose to invest in. That's why it's important to do your due diligence when researching investment properties by considering these factors.
No one understands these rental property factors more than Professional Real Estate Management and Investment Services Inc. We have nearly two decades of experience in the Pinellas County area and we're eager to share our knowledge with you so you can find the most profitable rental properties. Contact us today to learn more about our services!