A good rental property is the key to a successful real estate career. But what exactly makes a ‘good’ rental property? Also, how can real estate investors find a good income property? These are the two main questions we’re going to tackle in this blog, so keep reading to learn more!
What Makes a Good Rental Property?
The standard of a ‘good investment’ may vary when asking different types of real estate investors. However, five characteristics are universal when figuring out how to determine a good rental property: positive cash flow, appreciation, location, rental strategy, and demand.
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Positive Cash Flow
Rental income is the fuel of all rental property profitability. Therefore, without a doubt, a good rental property needs to generate high rental income. However, what matters more for a good investment is positive cash flow and rental yield. Cash flow is the difference between rental income and rental expenses. Rental yield, also known as return on investment, also includes operating expenses, such as mortgage payments. Having a high income is not enough for a good rental property. In order for a real estate investor to have a profitable investment, the property needs to have positive cash flow, or when rental income is more than rental expenses, and a high return on investment.
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Real Estate Appreciation
A profitable investment is not limited to rental income profitability. Appreciation, or an increase in property value over time, is also a necessity for a good investment property. What makes appreciation an excellent source of secondary profit is that it can be generated in both the short-term and long-term. Virtually every property benefits from appreciation in the long-term, even if the property is in a location with a low appreciation rate. Properties in the best cities to buy rental property, however, tend to have high appreciation rates and thus appreciate in the short-term as well. Appreciation gains are best utilized when selling a property, as an increase in value translates into an increase in selling price.
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Location
You’ve probably heard this a million times by now: what are the three most important factors in real estate? Location, location, and location. It may sound like a real estate cliché, but it is definitely true. An excellent location is the catalyst for having the best rental property. The reason is that many property features and factors depend on the property’s location. For instance, the rental strategy, which will be discussed next, is almost entirely dependent on location. Buying rental property for Airbnb purposes in a popular tourist destination is a recipe for success. Other notable location-influenced features of a good rental property include price, rental income, and demand.
Related: 10 Best Places to Invest in Real Estate in 2019
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Rental Strategy
One of the keys to having a good rental property investment is choosing the right rental strategy. There are many rental strategies out there, ranging from traditional long-term properties to Airbnb vacation rentals. Therefore, it is of the utmost importance for a real estate investor to select a suitable strategy for an income property. As previously mentioned, the property’s location will play a major role in choosing an investment strategy. For investing in Airbnb, a good location should have short-term rental regulations set in place and tourist destinations. A good location for traditional properties would, for instance, have a positive population growth rate and job growth rate. There is another way to decide on the ideal strategy for a good rental property, but more on that later.
Related: A Guide to Choosing the Best Rental Strategy: Airbnb vs. Traditional
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Demand
A good rental property will also be a property that is in high demand. Demand will vary based on strategy. Traditional rentals will, for example, garner demand from potential long-term residents, such as families. With high demand, a good rental property will most definitely be a profitable investment.
How to Find a Good Rental Property
Now that we know what a good investment property is, it’s time to answer how to find rental property that is sure to make you money. The best way to find an excellent investment property is to use an investment property calculator. We here at Mashvisor recommend using a calculator during an investment property search. That begs another question: what does an investment calculator do?
What Can an Investment Property Calculator Do?
During an investment property search, a rental property calculator performs three functions: real estate market analysis, neighborhood analysis, and real estate investment analysis.
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Real Estate Market Analysis
The first step in finding a good rental property with a calculator is to find the appropriate city to invest in. We use our investment property calculator and a wide database to bring you data on major US real estate markets. The best part is that you can visit our blog and view this data for free. The data presented is wide-ranging. It includes median prices, estimated rental income, return on investment, and rental strategy.
To learn more about how Mashvisor analyzes city markets, click here!
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Neighborhood Analysis
After finding the right city for investing in rental properties, investors can begin searching for a neighborhood to invest. The calculator will perform a neighborhood analysis, scouring the selected city to find neighborhoods that meet the investor’s standards. Much like the rental market criteria, these include median property prices, estimated cash on cash return and cap rate, estimated rental income for traditional and Airbnb strategies, average Airbnb occupancy rates, and the optimal rental strategy in the neighborhood.
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Real Estate Investment Analysis
Finally, the last step in finding a good rental property is to conduct a real estate investment analysis. Real estate investors can perform this analysis with Mashvisor’s investment property calculator. The calculator will tell investors a lot of information about the property’s investment potential. The investor will learn about the property’s estimated rental income and return on investment for traditional and Airbnb strategies, median property price, Airbnb occupancy rate, optimal rental strategy, and an evaluation score. One of the reasons Mashvisor’s calculator is unique is due to its Airbnb occupancy data and evaluation score. Airbnb occupancy data is self-explanatory; it is the estimated occupancy rate of Airbnb rental properties. Mashvisor’s evaluation score is a percentage the rates the property’s investment potential. The higher the score, the better the investment will likely be.
Related: The Best Investment Property Calculator in 2019
To sum up this blog in one sentence: The best way to find a good investment property is to use an investment property calculator. To start searching for homes for sale, even if you are buying your first rental property, click here to start your 14-day FREE trial with Mashvisor’s investment property calculator!