Investing in property is generally considered to be one of the best ways to accumulate wealth and secure your financial future. Compared to stocks, income property generates more reliable returns. However, while more and more people invest in income-producing properties, success isn’t guaranteed because of the many risks that come with it, which can limit your profits along the way. Whether you are just starting out in real estate investing or adding to your real estate investment portfolio, knowing how to find income property that is profitable is a valuable skill to have. To find the best income property, you will need to consider a number of factors. We have developed a handy checklist that you should always keep in mind when searching for an investment property to buy.
Here are some of the things to look for in an income property:
1. Profitable Location
Location is the most significant consideration when looking for the best income property. To find the best places to invest in real estate, you should do a thorough real estate market analysis. You need to find a real estate market that matches your investment goals and has high average returns.
First, a good location is one the matches your rental strategy. For instance, if you are looking to invest in Airbnb rentals, look for neighborhoods with tourist attractions like game reserves and beaches. Such neighborhoods usually get a huge number of visitors which will ensure a high Airbnb occupancy rate. For a traditional rental strategy, a neighborhood with a booming job market will be ideal. You could easily find the best rental property in such a location.
Properties that are close to transport links, shopping centers, schools, hospitals, and other amenities will typically attract more tenants. With high demand, real estate investors in such areas will be able to command a higher rent. Moreover, since real estate is usually a long-term investment, you should assess not only the short-term but also the long-term effects of owning income property in a particular location. How will future developments affect your business? In areas that are considered up-and-coming, investment properties typically have a higher potential to increase in value than those that are in areas that are already popular. Mashvisor’s Heatmap Analysis Tool can be used to find the best income property locations. The tool allows you to search for the best-performing neighborhoods in your city.
Related: Location Location Location – Is Location Really All in Real Estate Investing?
2. Positive Cash Flow
Another trait which the best income property should have is positive cash flow. To make sure that the income property generates positive cash flow, you need to assess the expenses of the rental property and deduct them from the expected rental income. If the rental income is higher than the rental expenses, then you have a positive cash flow. To ensure an accurate assessment of cash flow, make sure that you don’t neglect any of the rental expenses. This helps you to avoid unexpected expenses that could reduce your cash flow and even lead to negative cash flow. With Mashvisor’s Rental Property Income Calculator, you can quickly and easily conduct an investment property analysis to calculate cash flow as well as other real estate metrics.
Related: Why Positive Cash Flow Is a Must with Income Properties
3. Good Return on Investment
Another characteristic of the best rental investment properties is that they tend to have a high return on investment in terms of cap rate and cash on cash return. Before you purchase an income property, make sure you calculate these two metrics so as to estimate its profitability.
Generally, the best income properties with a good return on investment are usually simple, small, and undemanding. Luxury rentals might be tempting to real estate investors because of their high-income potential. However, they typically generate a lower return on investment due to their high operating expenses. You can always get an accurate calculation of the cap rate and cash on cash return of income properties in the US housing market using our Rental Property Calculator in just a single click.
4. Ideal for Both Rental Strategies (Airbnb and Traditional)
When looking for a good income property for sale, you need to assess the real estate market and determine the optimal rental strategy in that particular housing market. Airbnb rentals may do well in one market while other markets may favor traditional rentals. However, the housing market is usually quite dynamic and may change after a few months or years. It’s not always possible to predict the rental strategy that will do well in the future. Therefore, a wise real estate investor will always choose an income-producing property that is suitable for both rental strategies. These make for the best real estate in the world.
Related: A Guide to Choosing the Best Rental Property Strategy: Airbnb vs Traditional
5. Modest Repairs Needed
Fixer-uppers usually have a higher potential for capital gains. This can be a good opportunity if you are skilled in large-scale improvement or have someone who can do quality work inexpensively. However, if you are new to real estate investing, you should be careful. You may be taking on a bigger challenge than you can actually handle. An ideal investment property for you would be one that needs modest repairs.
The Bottom Line
One thing you should always keep in mind when buying income property is that your emotions should never come into play. Unlike when buying your home, buying an investment property requires you to look at the numbers and much more. If you are looking to buy the best income property, you will need to do thorough research and evaluation. To give yourself the best chance of making a good income property investment, you should consider residential income property for sale that matches the above criteria. Income property with these traits will be the most profitable and will help you to grow much faster.
To learn more about real estate investing, sign up for Mashvisor. To find and analyze great investment properties in the US housing market, be sure to use our real estate investment tools.