What Makes a Rental Property Profitable?

Begin Your Search

_Begin your search for a property on your own before bringing in a professional. An agent may put you under pressure to buy before you have found the best investment for you. And finding that investment will require some research and planning.

_This research will assist you in narrowing down several key features you want for your property, such as type, location, size, and amenities. After that, you may want to hire a real estate agent to assist you with the purchase.

_Your location options will be limited if you intend to actively manage the property yourself or hire someone else to do so. You don't want a property that is too far away from where you live if you intend to actively manage it yourself. If you hire a property management company to manage it, proximity is less of an issue.

Neighborhood

_The neighborhood in which you buy will influence the type of tenants you attract and also your vacancy rate. Students will most likely dominate your pool of potential tenants if you buy near a university, and you may struggle to fill vacancies every summer. and if you buy near a business hub, the tenants will be professionals with full-time jobs who may stay in your property for a long time; but, you should consider their employment history (you can find more in the previous article )

Schools

_If you're dealing with a family-sized home, think about the quality of the local schools. Although your primary concern will be monthly cash flow, the overall value of your rental property will come into play when you sell it. If there are no good schools nearby, the value of your investment may suffer.

Job Opportunities

_Locations with expanding job opportunities attract more tenants. If a major company announces its relocation to the area, you can bet that workers looking for a place to live will flock there. Depending on the type of business involved, this could cause housing prices to rise or fall. You can assume that if you want that company in your backyard, your tenants will too.

Amenities

_Examine the parks, restaurants, gyms, movie theaters, public transportation connections, and other amenities that attract renters. Social media may have promotional content that can point you in the direction of the best combination of public amenities and private property.

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Future Development

_The municipal planning department will have information on developments or plans that have already been zoned into the area, or you can visit the DXBinteract website if you are in Dubai. If there is a lot of building going on, it is most likely a good growth area. Keep an eye out for new developments that may lower the value of nearby properties. New construction may also compete with your property.

Number of Listings and Vacancies

_If a neighborhood has an unusually high number of listings, it could indicate a seasonal cycle or a neighborhood in decline—you must determine which. High vacancy rates, in either case, force landlords to lower rents in order to attract tenants. Low vacancy rates allow landlords to raise rents.

Average Rents

_You must be aware of the average rent in the area. Make sure that any?property you consider?can generate enough rent to cover your mortgage payment and other expenses. Investigate the area thoroughly enough to predict where it will be in the next five years.

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Natural Disasters

_Insurance is another expense that must be deducted from your returns, so you must know how much it will cost you. If you live in an earthquake or flood-prone area, insurance costs can eat into your rental income.

Obtaining Information

_Official sources are great, but to get the real scoop, talk to your neighbors. Speak with both renters and homeowners. Renters are far more truthful about the negative aspects of a neighborhood because they have no personal stake in it. Visit the area at various times and on various days of the week to observe your future neighbors in action.

Choosing a Property

_When you've narrowed down the neighborhood, look for a property with strong appreciation potential and a positive projected cash flow. Examine properties that are more expensive than you can afford as well as those that are within your budget. Real estate frequently sells for less than the asking price.

_Look for a property that, with a few cosmetic changes and minor renovations, could attract tenants willing to pay higher rents. This will also increase the property's value if you decide to sell it after a few years.

_Of course, purchasing a reasonably priced property is critical to ensuring a profitable venture. The recommendation for rental property is to pay no more than 12 times the expected annual rent.

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Calculating the Rent

_How is the potential rent calculated? You will have to make an educated guess. Don't get carried away with unrealistic expectations. Setting the rent too high and having an empty unit for months quickly reduces the overall profit. Begin with the neighborhood's average rent and work your way up. Consider whether your property is worth more or less, and why.

Making the Purchase

_Banks have stricter lending criteria for investment properties than they do for primary residences. They believe that if times are tough, people are less likely to jeopardize their homes than a business property. Prepare to pay at least 20% to 30% of the purchase price as a down payment, plus closing costs. Have a professional inspect the property and have a real estate lawyer review everything before signing.

In Conclusion

When you find your ideal rental property, keep your expectations realistic, and make sure your personal finances are good enough?to allow you to wait for the property to begin generating cash.