Are you looking to invest in residential rental property and generate passive (rental) income? Investment properties are excellent for building and sustaining wealth. However, investing in real estate requires much work, especially for first-time investors. The industry is becoming more saturated yearly and is constantly peppered with land mines that can affect your ROI.

Therefore, you need to assess your financial capabilities, investment goals, and what a profitable rental property looks like before splashing your cash.

In this post, we’ll share five features of profitable rental properties so you can make a more informed investment decision.

5 Factors that Determine a Rental Property’s Profitability

1. The Neighborhood

The neighborhood you decide to invest in will ultimately determine the rent you charge, the types of tenants you attract, and the vacancy rate. For instance, if you buy an apartment building near a college or business hub, young professionals and students will likely be your key prospects. On the flip side, neighborhoods with parks, supermarkets, and schools usually attract families.

2. Average Rent

Since rent will be your core income stream, you need to learn the average rent in the area you want to invest in. If you’re financing your investment property, make sure the property generates enough rent to cover mortgage payments, taxes, and other expenses. The last thing you want is to go further in debt or declare bankruptcy after spending a fortune on a rental property.

3. Amenities (Schools, Malls, Parks, Hospitals, etc.)

Another factor that determines the profitability of a property is the amenities in the neighborhood or vicinity, including schools, parks, gyms, malls, movie theaters, public transportation links, and more.

These amenities influence the rent and resale value of every property type, from houses to condos and apartments. So, take a tour of the area and look for options close to as many amenities as possible.

4. Number of Listings and Vacancies

After investing in a rental property, the last thing you want is to not have tenants lining up to fill your rental space. So, during your search, make sure you check the number of listings and vacancies in a neighborhood. Some neighborhoods are in decline due to several reasons, such as crime rates, high rent, low amenities, poor infrastructure, etc.

Moreover, some neighborhoods, especially those that attract young professionals and students, have a high turnover.

5. Crime Rate

Finally, the last thing any tenant wants is to live in a shady area with high levels of criminal activities, such as thefts, vandalism, and assaults. One way to determine the crime rate of a neighborhood or area is to get a copy of the crime statistics from the police or public library. You can also finalize your decision on the seriousness of crimes in the area.

Wrapping Up

By understanding these five features of a profitable rental property, you can confidently enter any market and do your due diligence before investing in one. Whether you’re looking for a condo, apartment, or detached home, you need to opt for an option that attracts longer-term, high-paying tenants to improve your ROI.

For more interesting reads related to real estate investing, visit the CHRE website right away. You can also explore our vast options of investment properties in Rio Grande Valley to start your investment venture or add to your existing portfolio.