If you're considering a long-term investment in real estate, rental property can be a great option for you. We will be discussing the best features of a profitable rental property which can assure great returns with stability. Rental property investment (or simply buy-to-let investment) is a very viable form of investment. As an investment avenue, it more often than not guarantees you a steady return on your investment. This, alongside forming a fairly strong protective hedge around your financial future.
Rental property investment continues to grow in the US. This growth is attributed to rapid urbanization and changes in per capita income alongside other socio-economic factors such as the unaffordability of homeownership. Young Americans are delaying home purchases due to steep prices that remain out of reach for many, which is expanding the rental housing market.
Homeownership is in decline after a few years of modest gains. The decline is seen among all age groups, with people under 35 seeing the largest decline. Therefore, rental demand is expected to increase significantly over the next five years, with many high-population locations currently facing rental housing shortages. As of now, 40.7 million or 34.6% of occupied housing units are renter-occupied. This suggests that demand for rental housing is on the rise, and that supply is failing to keep up with it.
In 2021, the nationwide homeownership rate declined 3.7% year-over-year (YoY) and the number of owner-occupied units declined 4.0% YoY. Homeowner vs. renter statistics reflects a decline in homeownership, with 36% of American households renting their home. 78.7 million out of a total of 122.8 million households are homeowning. 44.1 million households rent their homes. 2.7% of occupied housing units are second homes. 11% of all housing units are vacant. In the first financial quarter of 2021, the homeownership rate was 65.4%.
The Census Bureau counted nearly 20 million rental properties, with 48.2 million individual units, in its 2018 Rental Housing Finance Survey, the most recent one conducted. Individual investors owned nearly 14.3 million of those properties (71.6%), comprising almost 19.9 million units (41.2%). For-profit businesses of various sorts owned 3.7 million properties or 18.8%, but their holdings totaled 21.7 million units or 45% of the total. Entities such as housing cooperative organizations and nonprofits owned smaller shares of the total.
Individual investors are more likely to own single-family and duplex rental homes while big institutional investors own multi-family rental properties. The surveys show that 28% of renter-occupied homes are detached single-family units and 42% of renters live in single-family homes. The majority of the largest owners of apartments in the U.S. are real estate investment trusts (REITs), which are companies that own (and usually operate) income-producing real estate. In 2018, there were 226 REITs in the United States, who owned a combined 821 billion U.S. dollars of assets, and who had a combined market capitalization of one trillion U.S. dollars.
The rental returns in the U.S. have been steadily climbing in recent times. However, when seeking to invest in a rental property as a beginner, you must tread cautiously. This will help you to avoid common risks in rental property investing. Real estate although a profitable field is also equally a very tricky one. There's a lot to be wary of including con agents and dealers, substandard properties, and exorbitant charges among others. It's just important that you exercise caution before buying anything.
Talking about being careful, there's one mistake that every rental property investor must seek to avoid. What is this? Well, it's the mistake of buying an unprofitable rental property. Purchasing such a rental property is like taking all your hard-earned money and throwing it away. The property will just be sitting there with you barely earning anything from it. Worse still, it may even take from you in the form of repair and maintenance expenses.
Top 10 Features of a Profitable Rental Property
Investors seeking to invest in rental properties should always first ascertain a property's viability. There's only one way to know if a given property is indeed profitable, this is by checking if it meets the profitable rental property criteria. Below is a list of the top 10 features of a profitable rental property that you shouldn't ignore.
1. A Property Worth Your Money
Before anything else, a real estate investor should be convinced that the given rental property is financially worthwhile. Ask yourself whether the property in its current or improved state is worth spending your money on. How much rent is it likely to earn you per month?
What's the cost of repairs and refurbishment? Is it worth it? These are the kind of questions you should be asking yourself beforehand. An ideal rental property should earn you an annual gross rent of at least 12% of the purchase price. Apply the one percent rule to help you determine this.
The monthly rent you'll be collecting should at least be 1% of the house's value. This is one of the best features of a profitable rental property considered by seasoned real estate investors. Additionally, you can also involve a financial expert to help you determine the cap rate. This too will help you decide on whether the property is worth it.
2. A Neighborhood With Favorable Clients and Low Vacancy Rates
There isn't any other way, a rental property owner needs tenants. This is the only way he or she can earn income from the property they've invested in. The amount of income you make from a rental property is directly proportional to the neighborhood it's located in.
Neighborhoods with high rent rates will earn you more money than those with less. Likewise, neighborhoods with a higher caliber of clients will also earn you more. A perfect illustration of this is a case where there're two neighborhoods, one dominated by college students and the other with working-class family occupants. It goes without much saying that the latter will earn you more profits.
Too many vacancies could also mean the area is unattractive due to crime or other factors. Investigating the area with a local real estate agent can give you insight into the safety of the neighborhood and the reasons for the abundance of rental properties. This is also one of the features of a profitable rental property that you should always keep in mind.
3. A Safe And Secure Neighborhood
Security is very key when it comes to rental property investing. No tenant can knowingly want to live in an insecure neighborhood where crime or burglary rates are high. This holding true, your rental property business is unlikely to thrive in an unsafe and crime-infested area.
One of the features of a profitable rental property is that it should be located in a very safe neighborhood. Burglaries and theft are the most reported crimes in the U.S., so renters want to know that their families and items are secure. Areas, where vandalism and crime rates are high, are areas to avoid when considering purchasing a rental property.
Therefore, choose a neighborhood with adequate security when purchasing a property. Check things like street lighting, patrol police presence, proximity to sheriff departments, and crime data reports among others.
4. Presence of Schools With High Ratings
The availability of highly-rated schools is another key indicator of a rental property's potential profitability. The presence of educational facilities greatly determines whether tenants choose to settle in one place or not. It's all parents' wish to give their children a high-quality education that can spur them forward in life.
Parents can therefore never wish to live in an area that lacks quality schools and educational hubs. There should be elementary, middle, and high schools of good standards in the neighborhood.
This is also one of the best features of a profitable rental property. You can check the school ratings from sites like Greatschools.org. Using their school quality information, you can check the ratings of all the schools in your community. As an investor, take care, therefore, to pick a location with the best schools and learning abilities.
5. Presence of Physical and Social Amenities
Rental property investment thrives in areas with adequate amenities. Tenants want to be able to always access the facilities and services they require. These include things like shopping malls, gyms, medical facilities, and restaurants. They also include services such as telephone, water, electricity, and internet. Tenants will readily occupy your house if they can conveniently access these amenities – another great feature of a profitable rental property.
6. Adequate Transport Facilities
Related to socio-economic amenities, adequate transport also plays a significant part in rental property investment. The rental real estate business can only do well in areas with adequate transport. It’s smart to figure out the time you’ll spend commuting from home to the places that are important to you. Do you have quick access (within a few blocks) to a transportation system?
Ask yourself these questions:
- Does your would-be neighborhood have a good network of roads?
- Are the roads tarmacked?
- Do they have potholes or get flooded when it heavily rains?
- Is there enough public transport?
- Are there other means of transport aside from road – Airports, Buses, and Tubes?
These questions will help you choose a profitable rental property.
7. Adequate Sanitation
You can't talk of the features of a profitable rental property without also talking about sanitation. There's a need that the rental property you intend to buy to be in a place with adequate sanitation. Tenants tend to shy away from places with want hygiene and sanitation.
Picture this, no one would wish to live in a place where flies dash in and out at will or where drains lie open, or where there is a badly managed sewage system.
Try and pick a property with sufficient sanitation. Check on things like waste disposal, toilets, sanitary facilities, septic tanks, water and sewerage, stormwater drainage, etc. The cleaner the house and the neighborhood are, the higher the number of profits you can make from it.
8. Favorable Climate
Climate too plays an important part in the success of a profitable rental property investing business. Houses located in places with inclement weather usually struggle to attract clients. It's, therefore, necessary that you choose a location with the right climate for your property.
In line with picking the right climate, avoid cities that tend to have extreme and harsh weather. Also, avoid areas that are prone to floods and even fires.
9. Areas Devoid of Natural Disasters
Another important feature of a profitable rental property is that it should not be located in an area prone to natural disasters. With natural disasters and calamities, you really can't say whether a place is immune to destruction or not. It's just a matter of hoping for the best. Anywhere, there are places that from past occurrences have been known to be highly prone to natural disasters.
These include disasters such as tornadoes, hurricanes, windstorms, wildfires, storms, and even earthquakes. Places such as these are not very suitable location choices for rental properties. In the event of such disasters, one loses all their investment. This can be quite unfortunate if you also didn't have insurance cover against such eventualities.
10. Favorable Property Taxes
Property taxes on property in a given city or state also determine the profitability of rental property investment. The higher the taxes and charges levied by the government in a given area, the less you'll earn from investing in that area. Try and choose an area with attractive state levies.
Depending on where you live, you may qualify for a property tax exemption offered by your state, county, or local jurisdiction. Several other states have property tax rates under 1%, many of which are located in the south region of the country.
As an example, Alabama has both a low tax rate (0.40%) and home prices that are well below the median home value in the U.S. You can find high-quality investment properties at reasonable market prices in the Birmingham real estate market.
Investing in a rental property can be a hugely profitable venture or a financial mistake. It all depends on how you go about it. You will not make money in real estate unless you buy a profitable rental property in a growing real estate market. Try and take your time before putting your money on any property. Check carefully and be sure that it is worthwhile. Depending on your situation, you can go about the property purchase on your own or involve a real estate agent. Whatever the case, you should be able to reek in some profits from the right property.
Go for reputed turnkey real estate companies and buy rent-ready properties. Then, hire a good property management company that would find qualified tenants as well manage the property on your behalf. When shopping for expertise remember, there are no stupid questions. But lots of stupid answers. Consult with one of the investment counselors who can help build you a custom portfolio of turnkey cash-flow rental properties in the various growth markets across the United States.
Here are some of the growing real estate markets where you can invest in a rental property and get good returns:
- Houston Real Estate Market
- Atlanta Real Estate Market
- Dallas Real Estate Market
- Chicago Real Estate Market
All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.
- We offer investors fully refurbished as well as new construction residential properties ranging from single-family homes up to fourplex multi-units.
- Our properties make sense the day you buy them.
- There is nothing that needs to happen for the property to be a good wealth-building investment.
- We select markets based on several factors.
- At a high level, we consider economic factors that include job growth, unemployment, population growth, as well as the condition of the local housing market such as inventory, home price trends, etc.
- Some of our properties come with a rent guarantee ranging from three months to one year.