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What Makes a Rental Property Profitable? (2019 Update)

When you’re first getting into real estate investment, you may be under the impression that you can simply pick a house for sale, negotiate a good price on the deal, and then watch the profits roll in. While that’s the ideal outcome, there’s a little more to it than that. There is a variety of factors that contribute to how profitable – or not – your rental properties will be. By taking these things into account when deciding on rental houses to make offers on, you’ll maximize your chances of creating a lucrative long-term investment that is beneficial to all involved.

Some things to look for when evaluating rental properties:

The local job market – areas with robust employment growth attract people, that’s no secret. Take a look at existing job opportunities in the area, as well as any companies that may be planning to move into the neighborhood. Of course the type of business it is will dictate whether this is a good or bad thing.

The crime rate – it’s harder to get quality tenants into high crime areas. The Internet makes it easy to not only check for these statistics, but the location and quantity of sex offenders in the area as well.

The school system – for people with families, rental houses in good school districts are a hot commodity. The quality of the school system will not only affect your efforts to get tenants into your rental properties, but the resale value of the home down the road.

Neighborhood characteristics – is the house located near a college? This could mean student tenants, which translates into high tenant turnover and summer vacancies. Other things to look at – are the yards well kept? Are there blight laws that help keep visually unappealing debris under control?

Local amenities – close shopping, dining, theaters, mass transit access, parks, gyms, etc. all make rental properties more attractive to tenants, as well as to buyers when the time comes to sell your investment.

Average rent – this will be a crucial deciding factor in your ultimate choice of rental houses. The reason for this is because you can’t just set the rent at whatever you need to make to cover your expenses and make a profit each month. Whether you pay $80,000 in a cheap market or $150,000 in an upturn, if the house next door rents for $1200, that’s about what you’ll be able to charge (given equivalent square footage, features, etc.).

Property taxes – this is another vital piece of information that will have a significant bearing on your bottom line. Property tax information is typically available through the assessment office.

No matter where you are shopping for rental houses, these guidelines should give you a good start on evaluating properties to figure out whether they will ultimately translate to a profitable piece of your investment portfolio puzzle.