As a real estate investor and property management entrepreneur our team and I are often asked what makes a good rental property. If I had a quarter for every time I was asked this very question, well, I would have a lot of quarters, however, there are certain factors you will want to ensure you look for.
Location, Location, Location
It’s the old adage in real estate that the #1 factor in any investment property purchase is location However, the best time to get into a certain location can definitely change, as markets are constantly in flux. Picking the right cities, neighborhoods and even lots makes a difference. What is your timeline for holding the property? Will you self-manage or have professional property management on hand to deliver superior returns and generate truly passive income?
Property condition is where most real estate investors shoot themselves in the foot. New property investors all too frequently underestimate how property condition can impact their investments. Of course, some also allow themselves to be scared off investing in otherwise awesome property investments. For example; no matter how ugly the house, great value can often easily be found in cosmetic improvements, and even in some homes with foundation issues or that have termite damage. Will it take $5,000 and four days to get a property completed and rented, or six months and $50,000?
Just as important is the ongoing property maintenance and costs. Depending on age, quality of building, and other factors, how much will need to be set aside for capital reserves each month and year? How does this compare to other investment property options? How will it impact intensity of property management needs?
Property value is important for a number of different reasons. The value of the property compared to what you are paying for it is a huge factor to consider especially as you get in to appraised values. Every real estate investor has a different priority but one thing remains, all of them are looking for good income producing properties that will have enough equity to liquidate on their timeline. Appreciation is good, and it may not make sense to buy brand new pre-construction, but cash flow rules, and speculation on future value comes second.
Cash flow is one of the most important factors to consider when investing in a rental property. If there is no cash flow, why does it make a good income property investment? What guarantees are there of future income, or even finding a renter at all? How long will it take to get a property in “rentable” condition? At the very least, if the property doesn’t already have cash flowing, look into a professional property management company. A good third party management company is worth their weight in gold. Much of the rest, including location, may not matter much without cash flow. It is important to get a handle on future growth potential and where real estate values are headed. Where will they be when you plan to sell, or at crucial moments when you may want to tap equity for big ticket items? Be conservative, but hope for the best.
Perhaps even more important than the property itself is the management. Any opportunity is only as good as the execution. An ugly house in a deeply depressed area can still yield amazing returns with good property management. On the other hand, even the best home in the nicest neighborhood might deliver horrific results with poor management. This is one of the major reasons that I started Welcome Home Management as a professional property manager can make or break your project. Whether it’s us, or another company, it’s wise to have your property manager identified ahead of making an acquisition than scrambling after the fact.
These are just a few of the many important facets involved in selecting a great rental property but there are many more. The bottom line is this – do your due diligence, research the areas but once you have, be prepared to pull the trigger. Welcome Home Management has worked with buyers and investors since 2016 and have significant experience in helping you buy your next rental. If we can help, please don’t hesitate to reach out.
To our Mutual Success,