When shopping around for a lucrative investment property, is there such a thing as a “sure thing?” Of course not. There are many infinite variables that determine your success as a landlord. While you can’t control your luck, your timing, or any unforeseen pandemics, you can dramatically increase your odds for a substantial and steady income.
It helps to be familiar with the top features of a profitable rental property. These are key whether you’re looking to buy your first rental property or you’re an investor still looking for the magic money-making formula. Without all these real estate considerations in harmony, you can’t be confident in your purchase.
Of course, there will be some things you won’t be able to quantify. For instance, the COVID-19 outbreak prompted millions of Americans to move. Dorms closed, communities became hotspots, and with job furloughs and losses, many couldn’t afford their homes anymore. According to a Pew Research survey, one-fifth of all U.S. adults said that they changed residences because of the pandemic, or know someone who did.
What will that mean for the rental market in the long term? We’ll find out soon enough. All you can do is gather all the current information you can before making a decision. Here are some of the most significant factors that affect the value of a property, both currently and in the future.
Location
It’s true: Location can make or break a property. Not only will you want to look at the larger market—the closest city—but you should dig into all the neighborhood characteristics you can think of. Talk to some of the other neighborhood residents for the low-down. Are the streets in good shape, and is the lighting adequate? These small details make a big difference.
Schools
If you’re hoping to include families in your potential tenant pool, be aware of the local school district rating. Also, you could just ask anyone who lives in the area, because families with children will always have an opinion. Especially with families in the mix, you could be more likely to land a long-term lease, because parents hesitate to uproot their school-age children.
Crime
Will renters feel safe living there? Is the neighborhood changing? You can check accurate crime statistics with the local police or at the public library. Examine statistics from the last few years and note whether the crime rate has fluctuated. Try to gauge the frequency of a police presence in case of crime and emergencies.
Amenities
It’s not just the amenities on your property that makes it desirable. Look for a location that’s also near transport systems; as 45 percent of Americans currently have no access to public transportation, that can be a huge plus. Tenants want convenient shopping centers, restaurants, gyms, and great Thai takeout. If there are great parks or hiking trails in the area, all the better.
Job Market
An area like Orlando is usually booming for renters, with its combination of business hubs and tourist attractions such as Universal Studios and Disney World. A diverse job market will include several industries, not just one dominant company. People also want to live close to their workplaces. More jobs attract more people, so you can check unemployment rates and the state of local job listings in the area. Having reliable jobs means having reliable tenants, too.
Development Potential
Which way are population rates going? Is there a lot of business construction in the community? Do local taxes the area an appealing destination for companies when they relocate? Consider which industries are driving the job market, and what salary levels you can expect for renters. The growth of the community will be critical for both your cash flow and your equity value.
Insurance
Insurance fees can vary widely by location, which affects your bottom line. Be prepared for anything, because we have all seen that “anything” does happen. Buckle up for potential property damage that renters can inflict without a second thought. And if you’re waffling on whether you need specialized insurance, remember that it only takes one natural disaster (floods, earthquakes, tornadoes, sinkholes) for you to regret not having it.
Comparable Rents
One rule of thumb for owners is that the property’s gross monthly income should be at least 1 percent of the purchase price to cover expenses. Demographics will point you toward a competitive rent, and you can learn a lot from the year-to-year data. Chart rent cycles and track whether there’s a seasonal turnover. Take a look at the number of competing listings and occupancy rates. A management company is an invaluable resource for trends in the area.
Property Taxes
You can typically expect to find higher property taxes in more urban areas and lower taxes in rural areas. But some communities charge investment properties at a higher rate than owner-occupants, so check with the local tax assessor. And if this is your first time buying a property, familiarize yourself with any deductions that could lower your bill. Hiring an accountant is a good idea to help you run the numbers.
Physical Condition
You know how “low maintenance” is a good quality in a romantic partner? It’s even better in a property. Even if you know your way around a sump pump, an inexperienced landlord can’t realistically estimate how much time and money can go into repairs. A fixer upper could ultimately mean more profit, or construction could unexpectedly multiply. Any rehabbing means months without tenants paying rent. Buying a newer, mint condition property is always a safer bet.
Not all of the top features of a profitable rental property should make or break your decision to invest. It’s about looking at the big picture, and deciding whether those factors have a workable balance that will appeal to renters—and you. What downsides are you comfortable with? Know upfront where you can minimize risk and optimize your chance for earning a long-term, steady income.
If you’re browsing for properties in the Orlando area, you’ll find that it’s an incredibly strong rental market. Just 37 percent of Orlando’s population are homeowners, while the rest are baby boomers and millennials who rent their housing. The more recent figures for rents showed an increase of 2 percent, substantially higher than the country’s average. New buyers will find that the features of the Orlando area properties add up to a sound investment.
R. Russell Properties has managed more than 7,000 homes over four decades, and we know the market inside and out. If you’re looking for rental home management in Altamonte Springs, we can be an insightful guide to the unique characteristics of the neighborhood.
