Before you buy a house or multiplex to live in, it’s always a good idea to consider it’s features for making it a profitable rental property, if you decide to rent it out later on.
Everyone wants their rental property to have all the right qualities to bring in the highest amount of rent possible.
Two problems that you want to avoid with any rental property investment are:
Areas with strict control, and properties with overly high insurance premiums.
Especially if you’re not putting down a lot of money to purchase it!
Below, I’m going to share some more ideas that I’ve used over the years to help me judge whether a particular property might make a good rental or not.
Low Maintenance Yard
A yard and garden with little maintenance are ideal.
You’ll want to seriously consider hiring a gardener to take care of the yard maintenance. As tempting as it might be to have the tenant take care of things, I would not advise it. In my experience, this hardly ever works out and the yard will most likely be neglected.
So to keep the costs of hiring a gardner on the lower side, buy a home with a smaller yard, that you can easily landscape and maintain on a budget.
In places like California, where there is extended periods of time with no rain, you might also want to consider not having a lawn, and putting in drought resistant plants that require very little watering.
Forget About Luxurious Amenities (most of the time)
The inside of your rental property should be clean, modern, but not overly luxurious.
Most tenants don’t care about the extras such as high-end kitchen cabinets, flooring, or paint. These expensive items will always end up with extended wear and tear.
And guess what? There’s a higher price for repairing or replacing higher-end items inside your home.
There are some situations where you can get higher rent by making things luxurious, if that works for your neighborhood, I say go for it! But, just don’t overdo things.
Stay Far Away From Busy Streets, Trains, Freeways, Power Lines, Or Refineries
In a big city, some things are just unavoidable. Try to minimize your distance from super busy streets, trains, freeways, big power lines or refineries!
I once bought a rental property off a busy street, it was not too bad but I always had to give a discount on the rent because of it. Later on when I sold it, I had to except a discount on the sale price as well.
The lesson I learned, being far away will help maintain good property values, demand higher rent and be attractive for renters who want peace and quiet.
Forget A Condo, Buy A Single Family Home or Multi-plex Instead
Single Family Homes and Multi-Plex properties will always appreciate better in value than a condo. Not only will the property value be worth more over the years, but you’ll also be able to get more in monthly rent as well.
The last perk of not owning a condo is you will not have to deal with a Homeowners Association! Sometimes an HOA can restrict you from renting out your unit/property if an occupancy rule or regulation were to be passed by the board.
And yes, when I decided to rent a townhome which I had originally purchased as my first home, the HOA was a real issue after I moved out and had tenants living there. I was not breaking any laws or rules, but the tenants just did not follow all the rules. I can’t blame them really, some of the rules we’re really ridiculous.
Quality Of The Neighborhood
If you want to rent to a quality tenant, you’ll need a quality neighborhood.
If you drive or walk down the street at night would you feel safe?
Would you be OK with your kids playing football on the front lawn? Think of all the things that make a quality neighborhood. Then think about the kind of tenant that will attract.
So be sure to do your research on how desirable a particular neighborhood is, before you invest.
Consider Avoiding Properties With Strict Rent Control mixed with High Property Taxes, HOA Fees, and High Insurance Costs
Earlier, I mentioned a bit about avoiding rent control and high insurance costs.
You want to have a rental property with as much cash flow as possible. Rent control with expensive overhead costs can reduce the income potential of getting higher rents if your holding costs go up.
Your holding costs include things like Super High Property Taxes, HOA fees, and Insurance.
Overall, holding costs can and will eventually go up higher. This added cost will eat into your cash flow which should be used for paying your mortgage payment or setting extra money aside for an emergency fund to use for property repairs or vacancies.
To get the exact numbers on the cash flow for a rental property, I recommend using a rental property calculator.
If you have negative cash flow, find another rental property with more profit potential!
If you are holding a rental property with negative cash flow, you might want to consider selling it.
Located By Highly Rated Public Schools
Good or bad schools will affect how much you get in rent. Plus the overall appreciation of the property won’t be as much either.
I recommend to always buy in an area that has good rated public schools.
Check out the website called Great Schools for more information about finding school ratings in your area.
Future Development Around The Neighborhood or City
Any city or neighborhood that has future development plans for building and improving the local area will be great for real estate appreciation.
New parks, malls, gyms, movie theaters, train stations, condo’s, and office-space are all great indications that the city is moving in the right direction.
You can learn about the various projects from a city’s website. Sometimes they’ll even do local marketing with signs and fliers etc.
Final Thoughts
A good rental property has to be cash flow positive! If it’s not, it can be a landlord’s worst financial nightmare.
Lately, I’ve been avoiding rental property investments.
If you have a lot of money to put down, you can really minimize your overall risk of financial ruin. If you don’t have a lot of money to put down, you’ll have a high mortgage payment and overhead costs that will only go up year after year.
Cash flow is everything, remember, if a tenant stops paying the rent, you need to have extra money set aside to keep paying your mortgage payment and overhead expenses. If you have negative cash flow, you’ll never be able to set that extra money aside to cover an emergency.
If you default on your mortgage payments, you’ll be at risk of ruining your overall financial life.