Written by Sally Norton for Vogue Real Estate Australia
Getting into the rental business is a fantastic way to make some long-term passive income and spice up your investment portfolio. Although investing in real estate can be quite daunting for first-timers, it can also be a gratifying endeavour if you make the right choice of property. However, precisely that it the most significant issue most investors face – finding a suitable rental property. Luckily, to ensure you pick the right property, all you need to do is a bit of research. Therefore, let’s take a look at seven features of a profitable rental property.
Drumroll, please… Location is the key.
Location, location, location… That is the very first point to consider when deciding whether to invest in a particular property. You want it to be in the right area as it will determine the type of tenants you will have and the vacancy rates. For example, if your property is in the vicinity of a university, it will likely attract students. This is a positive thing, as you will have plenty of tenants to choose from. However, you should be prepared to have your property vacant during the summer. On the other hand, if your tenants sign a 12-month lease, this won’t be a problem. Moreover, you can choose a new and promising neighbourhood or play it safe by investing in an area showing steady growth. Also, depending on what your end game is, you may opt for commercial areas.
Low crime rates are imperative.
Very closely related to the location is safety. No-one wants to live in a neighborhood where they can’t feel safe. Therefore, you must check crime statistics in the area you are interested in. See what the rates for vandalism are. You will want to know how many serious and petty crimes have been committed. Also, it is vital to note if criminal activity is on the increase or it is declining. Ask around about how often police visit the neighborhood.
When you research this topic, don’t rely on what the seller tells you. Talk to the police or check the data in the public library. If the seller intends to get rid of the property fast or it is in an area with high crime rates, they may not be honest about it. Unfortunately, you probably won’t be able to find an utterly crime-free neighborhood. Nevertheless, some are safer than others.
Reasonable property taxes
Property taxes vary considerably from one area to another. If you want your rental property to be profitable, you must know how much you will have to pay on property tax. That said, it’s important to note that high property tax is not necessarily a bad thing. In a fantastic neighborhood that will ensure long-term tenants and a fair amount of rental income, it will not be a problem. Nevertheless, some not so attractive areas have high taxes, too. You should also investigate whether there is a probability for the taxes to increase in the near future. So, make sure you do your due diligence before falling for a property.
School proximity is also a significant factor.
If a family with kids is searching for a new home, one of the first things they will check is the proximity of schools. Also, they will be interested in the quality of the school district. So, if you want to attract families, this is the way to go.
On the other hand, if you are into commercial real estate, this will be no factor whatsoever. If a company wants to move its offices to a new location, the school district is of no importance. So, as we have mentioned before, you must know what your end game is and what type of tenants you hope for.
Check the job market in the area.
If the area sees an increasing number of job opportunities, it will attract more tenants. So, if a huge company announces moving to the area you are looking at, it’s a pretty safe bet that their employees will swarm there and need a place to live. Commercial moving is a complicated task, and companies like to stay on top of this whole process. So, if they have decided to relocate to the area, you may as well invest in it.
Amenities make a neighbourhood attractive.
Secluded property in the middle of nowhere certainly has its appeal. However, it also has limitations in terms of tenants. People like to live close to grocery stores, great restaurants, cafes, parks, and other green spaces. Young people especially want to live in an area where they can walk to all these amenities.
Therefore, when you visit the property you like, check the surroundings and see if there are movie theatres and gyms. Also, it’s crucial to know what is the public transport situation.
A profitable rental property is the one that doesn’t get damaged due to natural disasters.
All jokes aside, insurance is one more expense you will have to factor in when calculating your return on investment. If the property is in an area where earthquakes or tornados are frequent, there is a risk of flooding, or fires often break out, insurance costs will be higher and take a considerable chunk of your rental income. Tenants will also be reluctant to move to such places. This, it may be best to look elsewhere.
Real estate is a challenging and risky business. Wrong moves could obliterate your income. But if you do your research well and understand what features of a profitable rental property are, you will reap all the benefits of your investment. Finally, remember that maintaining your rental property in pristine condition will ensure you continue to attract tenants. People want to live in a place that looks great, and they will be willing to pay for it. So, even if you invest in exceptional real estate, it may all be in vain if you fail to invest some effort in the upkeep.