What to Look for When Investing in a Rental Property as a Means for Income

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Rental Property

When investing in rental properties, it goes without saying to look at quality buildings or dwellings. You can even look at fixer-uppers if you have the resources to invest in renovations. It’s also important to have an understanding of the weather patterns in a particular area to know which natural disasters are most common. But there are other things you should look at when you’re wanting to invest in properties.

If you’re serious about investing in real estate, and you want to generate a stream of income from it, it is important to do thorough research on the area or areas you’re looking into. The location and environment of your rental property should be a place that attracts people— long-term renters in particular.

Consider the Location of the Property

Depending on the type of rental property you own (residential, commercial, vacation), choosing the location of a property looks different for everyone. For instance, if you’re only interested in a vacation rental, you may be looking for houses near beaches or in other locations that attract tourists often.

Vacancy Rate vs. Occupancy Rate

Wherever you’re looking, one thing you’ll want to take into consideration is the vacancy rate of other residential and even commercial properties nearby. Are the other houses in the neighborhood always, or almost always empty? This means that there is a high vacancy rate, which is a bad sign. Instead, you’ll want to invest in a property that is located near other properties with a high occupancy rate. This is one way to tell whether or not the property you’re looking at is in a good environment.

What is the environment like?

Along with location, the environment of a place is also important. What are some recreational activities (parks, pools, movie theaters, etc.) nearby that potential tenants can enjoy? What is the crime rate like? This can probably go without saying, but people are not likely to rent property in areas with high crime activity. When looking for a good environment, you can enlist the help of a real estate agent.

What attracts long-term renters?

If the area you’re looking to buy property in has a lot of construction going on, it’s likely that it’s an area expected to see growth. Growth equals more job opportunities, and job opportunities indicate that people are willing to move to be closer to their jobs. Another thing that attracts long-term renters is quality schools. Families are already considered to be long-term renters; add quality schools into the mix, and you’re likely to have chosen a good environment to invest in.

Best Properties to Invest in

The best type of property to invest in depends on your goals as a real estate investor.

Residential Properties vs. Commercial Properties

Residential properties include single-family homes and multi-family homes. Apartments can be considered either residential or commercial property, or even mixed-use property. Residential properties are ideal for new investors and investors interested in vacation rentals that they themselves will also be able to use. These properties usually cost less to invest in, but there may be some difficulty seeing a return on investment (ROI).

Commercial properties include businesses, industrial buildings, malls, and other shopping centers, and hotels. Investing in commercial properties may cost you more upfront, but you’re more likely to see a higher ROI. For instance, apartments don’t usually see high vacancy rates, as some properties in residential neighborhoods may see. As for businesses and shopping centers, you’ll be working with professionals, so you’re more likely to see desirable tenants.

Conclusion

If you want to earn passive income from investing in real estate rental properties, you should consider which type of investment will be the most feasible and profitable for you. Many investors start with a residential property, being sure to do everything possible to generate a steady stream of income from it, and then they will move on to commercial property investments when they feel like they’re ready for it. The main thing to look for in a rental property is the likelihood of the area attracting potential renters, and the likelihood of it maintaining those tenants.