How do you know a great rental when you see one as an investor? Read this!
Investing in rental properties can be a great way to generate income, but finding the right property is essential for long-term success. What makes a rental property “good” depends on various factors, including location, market conditions, and demand. Clagett Enterprises has compiled a few key elements to consider when selecting a good rental property.
Location: Is It Near a Big City?
One of the most critical factors in choosing a rental property is its proximity to a major city. Large cities offer a wealth of job opportunities, cultural attractions, vibrant nightlife, and convenient amenities like shopping and dining. These are all significant draws for potential tenants, especially for young professionals and families.
But you don’t have to invest directly in the city itself. Sometimes, the most appealing rental properties are located in the suburbs of big cities. These suburban areas often have lower crime rates, better schools, and improved amenities, making them highly desirable places to live. Remember that most people prefer not to live more than 30 minutes from the city, so choose properties in a location that offers convenience without sacrificing quality of life.
Population: Is It Growing?
When investing in a rental property, it’s crucial to look at the size and growth of the population. A growing population often signals a healthy economy and increasing demand for housing. Ideally, you should look to invest in cities with a population of over 1 million residents. Around 40% of the population in these areas rents, meaning there could be approximately 400,000 potential tenants for your rental property.
If you are looking at smaller markets, consider the entire metro area. Even if the city’s population isn’t booming, the surrounding suburbs might be seeing growth, offering a larger pool of potential renters.
Market Conditions: Is It a Good Market?
Before buying, it’s important to evaluate whether the market favors buyers or sellers. Inventory is higher in a buyer’s market, and properties typically stay on the market longer, giving investors more options and better negotiating power. Conversely, properties sell quickly in a seller’s market, and prices may be higher due to demand.
Check the average days on market (DOM) and inventory levels to gauge market conditions. If properties are selling quickly, you might need to move fast to secure a good deal, but if properties linger on the market, it could present an opportunity to negotiate a better price.
Home Prices: Are They Increasing or Decreasing?
Tracking home price trends is essential when selecting a good rental property. A general rule of thumb is to monitor home values over a three-month period. If prices are steadily increasing, the area may be a good investment. On the other hand, if prices are declining, you should dig deeper to understand why before making a commitment.
Rental Demand: Is There a Strong Market for Renters?
Understanding rental demand in the area is another critical factor. Websites like Zillow or Rent.com, as well as local property managers, can offer valuable insights into how much rental demand exists in the market. Look for areas with high occupancy rates, where properties rent quickly. This can indicate a strong demand for rental homes and help you determine if your property will attract tenants.
Affordability: Is It in an Affordable Market?
Another vital factor is the affordability of the housing market. A good rental market typically features average home prices that are no more than three to four times the average income in the area. This ensures your tenants can afford to rent and live comfortably without stretching their finances too thin.
Look at the median home price in the area. Properties that fall around the median price point are often the most accessible and attract the most renters. While luxury homes may be appealing, a more affordable property may offer a broader pool of potential tenants and better long-term stability.
By considering these factors, you can find a good rental property that will attract tenants and remain a wise investment for many years.
Trust the Professionals at Clagett Enterprises for Your Realty Needs
If you’re looking for an experienced property management company, the perfect realtor for your property, or a professional to assist you during your purchase of any home, you can rely on Clagett Enterprises. Clagett Enterprises is a full-service real estate company with almost 30 years of experience in the Frederick and Western Maryland area. For assistance with commercial sales, leasing, management, and development and consulting, contact us online or give us a call at 301-665-6009. To meet our team and see some of our beautiful homes, follow us on Facebook and Linkedin.