Factors that Determine a Successful Rental Property Investment

Published On : 02/18/2022

Although real estate is a reliable investment, there are no guarantees, and sometimes people make bad investments. After all, considering how capital intensive the venture can be, you want to make your money back and more as soon as possible. While leaning on experts such as Bay Property Management Group can help you maximize your profits, you stand to earn more with the correct initial investment. 

So whether you’re a new investor looking to get into the game, or a seasoned player looking to expand your portfolio, you’re at the right place. This post reveals some of the most significant factors that determine a successful rental property investment. Stick around till the end to find out what you should look for the next time you go scouting.

1.Location

Location is arguably the most crucial factor in determining the success of your rental property. Since real estate is a physical asset, a lot of its value comes from where it is and the surrounding properties. You’ll find that in any city you visit, real estate in certain areas is more expensive than in others. This phenomenon is often due to several influences, including the walkability score, taxes, transportation, and utilities. Once you’ve discovered the best location for your property, you can start scouting for the best ways to finance your investment.  

2.House Condition

Another factor that determines the success of your rental property is the initial house condition. Newer homes tend to cost more on the market because they are low-maintenance in comparison to older ones. It’s one of the reasons build-to-rent properties are more expensive than your average rental that has already passed through several owners. That doesn’t mean every old house is a burst, but there’s a significantly higher tendency for things to go wrong. Not to mention that many of the fixtures and styling might be outdated and unattractive to the average tenant. Thus, it would help your business greatly to invest in newer properties. After all, significant cosmetic changes and renovations could easily cost you more in the long run. 

3.Proximity to Amenities

Where’s the closest grocery store? Can we get takeout around here? Is there a gym in the neighborhood? These are some common questions you might encounter from your prospective tenants during a home viewing, which is our next point. Residents value convenience, and what’s more convenient than having an excellent walkability score? Walkability score refers to a system of gauging the walking distance from a unit to social amenities such as parks, gyms, and restaurants. Living far away from such amenities can be annoying because it means long, tedious trips to the next neighborhood. Areas, where residents can quickly satisfy their average needs tend to be more expensive because they’re a lot more convenient. As a result, their landlords also make more profit. 

4.Proximity to Work and School

Like the point above, the easier it is for people to satisfy their needs, the more they are willing to pay. Since most people have to get up five times a day either for work or school, properties around such areas tend to be more expensive. For example, if your target audience is college students, you’re more likely to make a killing the closer you are to the university. Being close to their classes and other extracurricular means waking up later and spending less time commuting. The same logic applies to heavily commercialized areas with offices and elementary through high schools. Many tenants would choose to pay more and live a five-minute walk from their place of business over a twenty drive away even if the living conditions are identical.  

5.Property Taxes

Every municipality levies property taxes on its homeowners depending on their rental type. Since landlords are often burdened with the responsibility of paying this tax, it would be in your best interest to inquire about such fees before making a purchase. A single-family unit in neighborhood A could curry up twice as much tax as the one in neighborhood B, even when they’re identical in other aspects. Thus, it would be best to look up the previous tax information such as fees and projected increment over time. With such information in mind, you can prepare a more accurate estimation of your expenses and make a better decision.

6.Limited liabilities 

When referring to liabilities, we mean things that might make a house seem less appealing. For instance, neighborhoods with a higher crime rate tend to cost less to make up for their wary nature. Moreso, they tend to have a higher tenant turnover because people are always looking to leave and live somewhere safer. Another liability you might have to consider is whether the property is prone to disaster. Apart from residents feeling less inclined to move into a flood or hurricane zone, it could also drive up your premiums. That’s because insurance companies weigh the risk of backing your property in determining your monthly payments. Considering the costs associated with greater risks, the less risk means more money for you. 

Conclusion 

Any landlord looking to make the most out of their business should carefully consider these six factors that determine a successful rental property investment. It might take some time and research to locate houses that meet most of these criteria, but if you stay committed, you’ll reap the benefits. 

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Wanda Rich

Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.