How to find the best rental properties? This is one of the most recurring questions in real estate. Because finding a good rental property is somewhat challenging. In this article, you will learn how to find the best rental properties to invest in and the first step is research.
How to find the best rental properties: Online research
Well, the first step can be researching online. Since the internet has an unlimited selection of real estate websites just like ours that allow people to find what they are looking for.
These websites help to find all sorts of investment properties. From commercial properties for rent, through single family homes for rent, to apartment condos for rent. This means that if you have a specific request in mind, then for sure you can find more info in our webpage.
How to find the best rental properties: Real estate market research
This kind of research is also known as RMA: Rental Market Analysis. This is a process that help real estate investors. How? It assess the rental potential of a specific property market. So, how do you conduct a RMA?
1- Evaluate neighborhoods: evaluating different neighborhoods will help you find a “good” one. Which is a subjective statement. The first step is to assess different areas in general. If you need help with this, some factors to include when evaluating a neighborhood are the following: the accessibility to the are, the school’s area, nearby amenities and the businesses.
2- Find properties in order to compare them: in order to calculate the average rental price per square foot, it is necessary to identify rental comps. You just have to start looking for properties (at least three) with more or less the same characteristics, like size and condition or even the number of bedrooms.
3- Calculate the price per square foot: use rental data in order to calculate the average price per square foot of rental comps. Because all properties are different, you have to make adjustments in order to account these differences.
4- Determine the listed property’s cost: the cost of these properties can be determined by a quick analysis of the neighborhood housing inventory. Based on the average rent per square foot, you can easily find out how much rent to charge for a property. Therefore, a positive cash flow property will eventually have a lower monthly cost than the rental income.
How to find the best rental properties: What to look for
It is very important to know how to measure an investment performance and how it projects its return, so that you can exactly predict what to expect when investing in a rental property.
As an investor in real estate, it is possible that you will eventually come across with several real estate metrics. These are the ones that can determine the profitability of a property investment.
The most important metrics to keep in mind, are the following three:
- The capitalization rate: this kind of rate is a ratio, the quantitative relation between two amounts that express the profitability of a real estate investment by dividing its NOI (net operating income) by its current market value. The capitalization rate, or cap rate, is considered to be the purest form of rate of return. This is because its calculation is independent of the financing method. Why? Because, generally, a higher cap rate equals a higher return on investment.
- The cash flow: in this spectrum we have both positive and negative cash flows. The positive cash flows properties are properties which have lower operating costs than the rental income. So, a well-informed real estate investor can actually turn a negative cash flow property into a positive one. Even if it is advisable to look directly to invest in properties with a positive cash flow.
- The occupancy rate: this rate is the percentage of time a rental property is occupied or the percentage of time a rental property is leased out to a tenant. This metric is important especially to investors who are interested in short-term rental properties. Long-term rental properties require other strategies.
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