7 Factors to Consider When Choosing a Profitable Long-Term Rental Property

Real estate continues to be the single best way to invest your money to create long-term wealth, and ultimately financial freedom. The key to building long-term wealth lies in assets that appreciate over time, as well as cash generating assets that provide you with passive income. And the reason real estate makes for such a great investment is because it can do both of those things at the same time. Rental real estate provides owners with consistent cash flow, and tends to appreciate over time since it is always in demand. Are you considering adding a rental property to your investment portfolio? Continue reading to learn the 7 factors to keep in mind when looking for a property.

Location, Location, Location

Location is always going to be one of the most important factors in a real estate deal. A good neighborhood and location are sure to lead to higher demand for a property, and in turn a better return for investors. Ideally, you want your property to be in a safe area that has access to amenities like shopping centers and restaurants, or easy access to transportation so people can get to these areas. You may also want to look into the quality of schools in an area if your goal is to appeal to more family-oriented buyers.

Rental Demand and Market Stability

The next thing you will want to look into is the data on rental demand in a particular market. If an area is experiencing high vacancy rates or shrinking property values, you may be better off investing in a different market. Conversely, if an area is seeing high population growth or a rapidly expanding job market, it will also likely mean higher demand for housing. Consider working with a data aggregator such as ATTOM Data to get up-to-date statistics on a given market.

Property Condition and Maintenance

Another factor to consider before you purchase a rental property is its condition, as well as the necessary repairs and maintenance required after you buy it. If a property is in poor condition it may be offered at a discount, but you should carefully consider the cost to repair it and if it’s even worth the effort. You should also be prepared to perform regular maintenance and inspections on the property and its rental units. If it’s your first time managing a rental, you may be better off going with a single-family or smaller multifamily home until you’re more familiar with the process.

Cash Flow Potential

Cash flow refers to the amount of money an asset generates for its owner every month after all related costs and expenses are considered. Essentially, the higher the cash flow of a property the more profitable it is for the owner to operate. You can calculate the cash flow of a potential rental and compare it with other properties to see which makes for a better investment. Be sure to include all expenses in these calculations, from maintenance and repairs to insurance and mortgage interest.

Financing Costs

Speaking of calculating profitability, you shouldn’t neglect financing costs when determining if a home makes for a good investment. Your loan’s interest rate is sure to play a big part in your expenses, but you will also need to include closing costs, taxes, and insurance in your calculations as well. For these reasons, it can be a good idea to have financing in place before you even start looking at different properties.

Rental Laws and Regulations

Another often overlooked factor to consider when you’re investing in rental properties is the local and state regulations surrounding them. You should be well aware of landlord-tenant laws and any licensing requirements in the property’s jurisdiction so that you can follow them accordingly. This will help prevent you from running into any legal trouble as you continue to manage your property.

Future Growth

Finally, you will want to take the future growth potential of your investment into consideration. There will be certain markets, as well as certain neighborhoods that see property values grow higher than other areas. In some situations, it can be beneficial to purchase a more expensive property in a great neighborhood as it will see higher growth over time. Be sure to compare the growth potential of different properties to help you decide which will be worth your investment.

RCN Capital

The easiest way to save on a real estate investment is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance a long-term rental property? Connect with us today.

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