Table of Contents
- How Profitable Are Rental Properties?
- What Rental Properties Are the Most Profitable?
- 3 Steps to Find Rental Investment Properties for Sale
- Top 10 Cities With the Most Profitable Rental Investment Properties in 2022/2023
- Is It Smart to Buy an Investment Property While Renting?
It is already proven how profitable rental property investments are, based on the countless investors who’ve made successful investments in rental properties. However, previously, the main concern among most investors is finding the right rental investment properties for sale. Not all properties listed on the MLS are right for you. It will largely depend on your investment goals at the end of the day.
This article hopes to address some of your concerns, especially when it comes to finding the right neighborhood and property to invest in. With real estate website Mashvisor’s help, finding the right rental property investment for sale that will help you reach your goals becomes a lot easier.
How Profitable Are Rental Properties?
Investment properties turned into rentals offer great income-generating potential. However, certain conditions apply for a rental property to generate a positive cash flow. Success in rental property investing is subjective. As mentioned earlier, it depends largely on your investment goals and needs.
For instance, if your goal is to make a regular monthly rental income of at least $1,700, then perhaps buying rental investment properties for sale in Maryland will do you some good. According to Mashvisor’s latest data, the state of Maryland shows an average monthly traditional rental income of $1,949. If you decide to go the Airbnb route in Maryland, you can get a bigger monthly rental income at $3,327.
However, you need to consider other factors in determining a rental property’s profitability. You must ensure that the property is self-sufficient and leaves you with enough money to take to the bank. This is what a positive cash flow looks like. It generates enough income to take care of the property’s needs and gives you a decent profit on top of the operating costs.
On the other hand, you don’t want a negative cash flow property. It does not earn enough for you to even break even. You end up dipping into your own pocket to keep your rental business running, which is counterproductive to any investor’s goals. Ideally, you should at least make $100 in profit on your rental property.
The 1% Rule
Most investors choose to go with the 1% Rule in which the property should make at least 1% of the property’s value.
For example, you’re looking to obtain a mortgage loan with a $200,000 total payoff value. Based on this number, you should get at least $2,000 as monthly rental income so you don’t get a negative cash flow on your property. $2,000 is 1% of the total mortgage loan. You should make at least this much for your investment to be considered profitable.
Think of the 1% Rule as a handy guide to determining whether an income property for sale is profitable or not. It will give you an idea of how much you should charge when you look at any for-sale properties. However, you still need to do lots of research about the neighborhood and prospective properties within an area. It can be done by conducting a rental market analysis of your neighborhood of choice.
If you do your homework and you do things right, owning rental properties means having assets that will continue to generate income for you practically for life. This is why it’s very important to know what to look for when it comes to rental investment properties for sale.
Related: The 1 Percent Rule in Real Estate Explained
What Rental Properties Are the Most Profitable?
Rental properties, both traditional and Airbnb, can be quite profitable if you only know how to identify which properties can give you a good monthly rental income. Identifying the properties for sale worth investing in will take some getting used to but knowing what to look for will help get you started.
Generally, single-family and multi-family homes make for great rental properties. However, depending on your location, condos and beach or lake-front properties tend to generate more income than single-family units. For instance, a Miami condo with a view of the beach will get you more in monthly income compared to one in the inner city.
Types of Rental Properties and Their Pros and Cons
Here is a list of the common property types and how much income they can generate:
Single-Family Units
Single-family homes are the most common rental property types. They are intended to house one family and are typically stand-alone units.
Among its advantages are:
- They are easy to work with.
- They come with standard inner workings (electricity, plumbing, and other similar lines).
- You don’t need to deal with neighbor complaints, unlike units with shared walls.
- They appreciate faster, especially in strong markets.
- They are easier to sell.
On the other hand, some disadvantages of owning a single-family rental include:
- They cost higher per unit compared to one multi-family unit.
- There’s more competition in the market as most people are looking for single-family homes.
Multi-Family Units
Multi-family units are real estate properties with more than one residential unit. Small multi-family units are made up of up to four units. Their values are based on other residential properties in the neighborhood. Large multi-family units, on the other hand, are made up of at least five units and are comparatively valued to commercial properties within the same location.
Among its advantages are:
- You only pay closing costs once for multi-family properties regardless of the number of units included.
- Scaling profit is quicker compared to single-family homes. A $50-increase in rent for a five-unit property already gives you an additional $250 monthly.
- You can be more creative in increasing your income by adding garages or coin-operated laundry machines.
- There’s far less competition in the market for multi-family homes.
Multi-family units also come with their disadvantages, such as:
- The upfront purchase will cost you a lot more.
- It is harder to convince banks and lenders to lend you money to make a multi-family home purchase.
- It requires a large down payment and entails a large monthly mortgage payment.
- There are fewer choices in the market.
- You will encounter neighbor drama inevitably, especially if you end up with a bad tenant.
Townhouses and Condos
Condos and townhouses are somewhat combinations of single-family and multi-family homes. They share amenities but are also individually owned.
The advantages of renting out a townhouse or condo include:
- They come with shared amenities like a swimming pool, tennis court, lawn maintenance, security, and other similar things.
- It takes less effort to manage because of the homeowners’ association (HOA) unless the tenant raises specific concerns about the unit itself.
Now certain risks also come with renting out a condo or a townhouse, such as:
- While the HOA can take care of some of the maintenance and repairs, it can also limit how you use your unit.
- HOA fees are an added expense and can take away from your potential monthly profit.
Foreclosures
Foreclosures are properties owned by banks after their previous owners failed to fulfill their mortgage obligations.
Foreclosed homes can be bought and converted into rental properties. Some of the pros of doing this are:
- They are relatively cheaper and can be snagged at below market value.
- Not many people are interested in buying foreclosed properties because they are mostly distressed properties.
- You exert greater control over home improvements.
However, foreclosures also come with certain downsides, such as:
- What you save in purchase costs will be eaten up by home improvements. You might even need to put in a bit more to get rid of defects like molds, vandalism, and structural issues.
- It might take some time before you get the unit rent-ready.
As far as rental investment properties for sale go, there are plenty of options in different markets. It boils down to finding the right property type that aligns with your goals. It is best to ask a local real estate agent for recommendations on which type of property for sale will get you the most in a month.
Looking for the right rental property for sale is both an art and a science. It can be quite tricky, especially when you’re starting out. Knowing the science behind it will help you identify which rental investment properties for sale are worth looking into.
Related: The Most Profitable Types of Real Estate Investment for 2022
3 Steps to Find Rental Investment Properties for Sale
Looking for the right investment property for sale can be challenging. For this reason, we’ve listed a few practical and easy-to-follow steps you can take to get started on your investment journey.
Step 1: Identify a Location
We all know how big a part location plays in the success of a rental property, regardless if it’s a traditional or a vacation rental. Choosing a rental property’s location is as important as choosing the property itself.
Listed below are some of the most important things you should look out for when checking out rental investment properties for sale:
- Location and Neighborhood. Location is a very important aspect of real estate investing that should never be overlooked. Choose a neighborhood that can offer you a good return on investment with above-average cash on cash return and cap rate.
- Property Taxes. Property taxes vary depending on your location. Be sure to consult with a local real estate agent or tax specialist about this before making any final decisions.
- Rental Market. Knowing what the rental market is like will give you an idea of how much you can earn monthly.
On the last point, obtaining a deeper insight into the market you’re considering will allow you to accurately project how much income you can make on a rental property. It will, of course, depend on the rental strategy you take. Typically, Airbnb rentals make more in terms of monthly income compared to traditional rentals. However, traditional rentals provide a stable income source compared to the more erratic vacation rental strategy.
Mashvisor can help you find the best location for your rental property investment, regardless of strategy. The platform’s Property Search tool allows you to locate and carefully analyze potential income properties that meet your criteria.
Step 2: Find the Right Neighborhood
Once you’ve locked in your location, the next step is to find the right neighborhood to invest in.
In choosing a neighborhood, you should consider the following:
- Public Amenities and Transportation. Is the location easily accessible to amenities such as restaurants, shopping, parks, and public transportation?
- Schools. Generally, locations that are near schools and universities tend to attract tenants, especially if your rental property is geared toward families.
- Crime Rate. Choose a location that has a very low crime rate. Tenants and guests prefer rentals that do not belong to crime-infested sections of the city.
- Job Market and Economy. A growing job market and thriving economy are attractive to both tenants and visitors.
- Future Developments. You also need to consider what the future holds for the area as it will impact its long-term profitability.
Additionally, you also need to know what the neighborhood rental market can offer you as far as investment return is concerned. Mashvisor’s real estate heatmap will give you an idea of how hot, lukewarm, or cold the market is based on the following factors:
- Traditional Cash on Cash Return
- Airbnb Cash on Cash Return
- Airbnb Rental Income
- Traditional Rental Income
- Listing Price
- Airbnb Occupancy Rate
You can use Mashvisor’s Real Estate Heatmap to see how a particular neighborhood is performing based on cash on cash return, rental income, listing price, and occupancy rate.
Step 3: Perform a Property Analysis
The first couple of steps require that you analyze the market. Once you already know what the market can offer and you’re pleased with the results, the next step is finding the right property that will help you achieve your investment objectives.
Ensuring profitability requires performing an investment property analysis. The analysis involves the search for rental investment properties for sale within an area and analyzing their income-generating potential. You need to crunch the numbers for each property that meets your criteria.
Mashvisor’s investment property calculator makes doing the math a lot easier. It uses up-to-date data gathered from reliable sources so you can get the most accurate results in your calculations. Mashvisor uses actual rental comps for better computations. You can also customize your calculations by editing the values and figures as needed.
Related: How to Find Rental Property Online
Top 10 Cities With the Most Profitable Rental Investment Properties in 2022/2023
We cannot stress enough how important a location is to your success as a rental property investor. We checked out the latest data from Mashvisor and listed below some of the best rental markets for you to look for properties for sale.
5 Top Locations for Traditional Rental Properties
Using the latest data gathered by Mashvisor, we give you the top locations for traditional rental properties:
1. Stuart, FL
- Median Property Price: $675,754
- Average Price per Square Foot: $359
- Days on Market: 49
- Number of Traditional Listings: 380
- Monthly Traditional Rental Income: $2,872
- Traditional Cash on Cash Return: 3.31%
- Traditional Cap Rate: 3.38%
- Price to Rent Ratio: 20
- Walk Score: 40
2. Deerfield Beach, FL
- Median Property Price: $478,810
- Average Price per Square Foot: $334
- Days on Market: 35
- Number of Traditional Listings: 387
- Monthly Traditional Rental Income: $2,038
- Traditional Cash on Cash Return: 3.23%
- Traditional Cap Rate: 3.35%
- Price to Rent Ratio: 20
- Walk Score: 78
3. Largo, FL
- Median Property Price: $498,550
- Average Price per Square Foot: $303
- Days on Market: 64
- Number of Traditional Listings: 194
- Monthly Traditional Rental Income: $2,115
- Traditional Cash on Cash Return: 3.23%
- Traditional Cap Rate: 3.31%
- Price to Rent Ratio: 20
- Walk Score: 53
4. Odenton, MD
- Median Property Price: $521,160
- Average Price per Square Foot: $353
- Days on Market: 117
- Number of Traditional Listings: 144
- Monthly Traditional Rental Income: $2,221
- Traditional Cash on Cash Return: 3.22%
- Traditional Cap Rate: 3.29%
- Price to Rent Ratio: 20
- Walk Score: 60
5. Ormond Beach, FL
- Median Property Price: $519,395
- Average Price per Square Foot: $292
- Days on Market: 77
- Number of Traditional Listings: 204
- Monthly Traditional Rental Income: $2,212
- Traditional Cash on Cash Return: 3.20%
- Traditional Cap Rate: 3.27%
- Price to Rent Ratio: 20
- Walk Score: 52
To start looking for the best traditional rental properties in your city and neighborhood of choice, click here.
5 Top Locations for Vacation Rental Properties
Here are the top locations for vacation rentals according to Mashvisor’s latest data:
1. Delhi Township, OH
- Median Property Price: $235,156
- Average Price per Square Foot: $148
- Days on Market: 27
- Monthly Airbnb Rental Income: $3,142
- Airbnb Cash on Cash Return: 8.09%
- Airbnb Cap Rate: 8.37%
- Airbnb Daily Rate: $115
- Airbnb Occupancy Rate: 55%
- Walk Score: 57
2. Rio Grande, NJ
- Median Property Price: $318,900
- Average Price per Square Foot: $245
- Days on Market: 52
- Monthly Airbnb Rental Income: $3,965
- Airbnb Cash on Cash Return: 8%
- Airbnb Cap Rate: 8.21%
- Airbnb Daily Rate: $301
- Airbnb Occupancy Rate: 52%
- Walk Score: 52
3. Reading, OH
- Median Property Price: $214,940
- Average Price per Square Foot: $148
- Days on Market: 33
- Monthly Airbnb Rental Income: $2,761
- Airbnb Cash on Cash Return: 7.66%
- Airbnb Cap Rate: 7.95%
- Airbnb Daily Rate: $101
- Airbnb Occupancy Rate: 59
- Walk Score: 80
4. Nashville, IN
- Median Property Price: $495,964
- Average Price per Square Foot: $202
- Days on Market: 35
- Monthly Airbnb Rental Income: $4,965
- Airbnb Cash on Cash Return: 7.58%
- Airbnb Cap Rate: 7.73%
- Airbnb Daily Rate: $260
- Airbnb Occupancy Rate: 55%
- Walk Score: 56
5. West Allis, WI
- Median Property Price: $219,161
- Average Price per Square Foot: $154
- Days on Market: 36
- Monthly Airbnb Rental Income: $2,861
- Airbnb Cash on Cash Return: 7.51%
- Airbnb Cap Rate: 7.79%
- Airbnb Daily Rate: $116
- Airbnb Occupancy Rate: 69%
- Walk Score: 56
To start looking for the best Airbnb properties, click here.
Is It Smart to Buy an Investment Property While Renting?
The long and short of it is if you have the means, then we say go for it.
Investing in an income property while renting a house yourself has advantages and disadvantages. The major downside is that you might be biting off more than you could chew when it comes to your finances and time.
Owning a rental property requires a more hands-on approach if you want to optimize your income potential. You can go down the route of hiring property managers. However, it is an added expense that takes away from your profit.
Plus, if you’re still renting a house, adding regular mortgage payments to your monthly rentals might be overwhelming, especially if you consider inflation and the rising mortgage rates.
On the other hand, if you have enough cash to purchase an investment property and it won’t affect your other financial obligations, do it. Look for an affordable property for sale in a good market that will give you decent cash on cash return. You will want to look for a self-sustaining property that takes care of itself financially while making you some money along the way.
Again, the key here is to ensure that investing in a rental property will not mess up your other priorities. If you can afford it, it is an excellent income source for both the short- and long-term.
Related: Why You Should Buy an Investment Property While Renting
Wrapping It Up
To conclude, buying rental investment properties for sale is a wise move, provided you do your homework. All successful investment ventures are attained because of careful and thoughtful planning.
As an investor, you should perform extensive due diligence to ensure that you get the optimal return on your investment. Using a tool like Mashvisor helps make the entire process a lot easier. From property searches to income calculations, the hunt for the right investment property can be done quickly and efficiently with Mashvisor’s database and tools.
To Mashvisor’s real estate investment tools, sign up for a 7-day free trial today, followed by 15% off for life.