Follow the Market
In most cases, the first factor to consider when investing in a good rental property is location. This may be true, but it’s a better idea to check in with where the market stands. From the perspective of a Chicagoan looking to buy during 2020, 2021, and post Covid-19, the market has been dramatically shifting. It is important to consider housing market trends, as well as stay up to date on news relating to economic impacts that tend to shift the market.
Location
What separates a good rental property from a great one is location. It’s important to consider location when seeking out a rental property because of profitability. Put yourself in your tenants’ shoes, you should want to live where you’re investing too. This helps when considering factors such as building amenities, green space, scenic views, closeness to farmers markets, transportation, tax-exempt areas, etc. These all play a role in commercial property evaluations as well.
How do you choose a good location? Consider the mid-to-long term approach. Seek out growing neighborhoods or plots that have this potential. It is important to thoroughly review the intended usage and ownership of the areas where you plan to invest as well.
Property Condition & Value
Once a neighborhood or location is chosen, now it’s time to evaluate the estate and its condition. The condition of the building can affect the listing price, financing, investment analysis, as well as taxes and insurance cost. Lofty agents assist with this process by providing a competitive market analysis.
Cash Flow & Growth Potential
There are a few ways to determine if property is returning a good investment or positive cash flow. If you are familiar with finance, you may have heard of the 2% rule. This rule states that if the monthly rent for a property is at least 2% of the purchase price, it will likely produce a positive cash flow. The equation is as follows: monthly rent / purchase price = X. If X is less than 0.02 then the property is not going to be as profitable of an investment. Typically, a good ROI for a rental property is usually above 10%, but 5-10% is also an acceptable range.
It is always important to crunch the numbers when considering investing in property.
Consider Property Management
It can be said that perhaps even more important than the property itself is its management. If you’ve never worked with a property management company, you may be surprised at how much they can help with tenancy turnovers, as well as other aspects of being a landlord.
Property managers are able to contract out the necessary work, market the property for new tenants, oversee and manage any work occurring at the property, and communicate with departing tenants to get everything squared away for you. You can hand off all those pesky jobs to someone else and reap the benefits of owning investment properties through true passive income.
Rental property investments can be intimidating for the beginning investor but knowing which factors make a great property investment and where to look for them can help you start your journey to passive rental income.
Here at Lofty, we believe that owning investment properties shouldn’t be a headache. We take care of everything our owners need, from screening tenants to doing the physical work between occupancies. Stop wasting time checking whether lights are working and sweeping baseboards and start enjoying being a landlord and property owner!
