You know that investing in rental income properties is a wonderful way to create asset and wealth. But you also know that you cannot expect good rental income from any property in any condition and in any location. You must identify the right property at the right price to make your investment profitable. This can be a very challenging task for any investor. Here are 4 characteristics that are common in all good rental income properties.
They are in desirable neighborhoods
No matter in which state you are operating, you will find that the best rental income producing properties are invariably located in neighborhoods that are considered highly desirable by renters. Obviously, these are the locations where property values are high, but landlords also enjoy very low vacancy rates because of strong demand for homes among renters.
Knowing that best rental income properties are found in top locations, it becomes easy for you to shortlist properties that are worth buying. You need not look at cheaper properties in remote locations as they will not attract large numbers of tenants. There are many factors that are responsible for making a neighborhood desirable among renters. They are low crime rates, presence of good quality schools, proximity to mass transportation facilities, shops, and restaurants, and so on. By comparing various neighborhoods on these metrics, it becomes easy for you to choose the location where you should buy a rental income property. Of course, the price tag of the property matters but you also need to consider all these factors.
They produce positive cash flow
This is another characteristic of great rental income property. They generate more income than expenses incurred on them to produce a positive cash flow for the owner. When you are searching for a rental income property, it is therefore advisable to calculate the cash flow. It is calculated by dividing the net operational income by the value of the property. You know the price, so you only need to find out the net operational income. You need to subtract all operational expenses form the gross revenue generated by the property to find its net operating income. If the property is producing positive cash flow, it is worth investing your money.
They are all small and simple buildings
This is a characteristic that may be surprising for some investors. But you do not expect average middle-class renters to be attracted to luxurious apartments, do you? This is the reason the most lucrative rental income properties are often small single-family homes and multifamily apartment buildings. If you think rental income of luxury apartments is very high, so are their operational expenses. If your property remains vacant for a long time, it can never generate a positive cash flow.
On the other hand, it is advisable to buy inexpensive single-family homes or multifamily apartment buildings where you experience low vacancy rates. You keep generating a high amount of rental income if most of the units are occupied by renters.
They do not require major repairs
Many investors are tempted to buy rental income properties that are available at less than their market value without paying attention to their condition. Remember that all good rental income properties are in a good condition and they do not require major repairs. As an investor, you know that you can hope to earn rental income right after buying such properties as you do not have to wait till they are repaired and made rent ready. These repairs can be very time consuming and very expensive to upset all your calculations.