Before you get caught up in thinking every one of these factors must be perfect before you buy a rental property, know that it’s rare for this to be the case. Your goal is to try to maximize each of these as best you can, and sometimes one can be more important than others. Here are the factors that you look for in a great residential rental investment, single family or condominium:
Yes, you can say it three times, as real estate is all about location. You wouldn’t want to rent a home in the middle of a supermarket parking lot, but one near a green belt or park for your children could be just right.
Location is a part of this factor. However, if a home is in a great location, but the competition is stiff, it may not be the best investment. When there are many rentals available and owners are offering incentives, it may not be the right time. When there are few rentals available, not only are you able to keep a property occupied better, you can demand higher rents at the same time.
This is relative, as property taxes are a major expense, but some areas command high rents because of the area amenities, so taxes are higher as well. If you can offset expenses with monthly cash flow left over, then it’s a positive.
Though cash flow is the primary consideration, appreciation in value over time is important. There are two ways in which you build equity in a rental property, appreciation in value and paying down the mortgage. Intelligent leveraging of your investments can be used to grow your portfolio using the equity in owned properties.
These are your main considerations, of course, you’ll be looking at the age of the property, expected repairs over time and any necessary improvements as well.