If you are interested in earning passive income, you might hope to purchase a residential rental property.
This post will explore what features make for the most profitable properties and how can you avoid properties that end up being more trouble than they are worth.
Set the radius for your search
If you intend to manage your property on your own, you will want it to be within a certain radius of where you live or work. Should you be interested in using a property management company, you still want to think about properties within the range of a specific city, a main attraction or a certain exit on the highway.
A quality neighborhood
Once you know the general area you want to buy in, research neighborhood demographics and rental pricing. While you cannot legally deny applications on the basis of job or age, you may be more interested in renting to young professionals or families than, say, college students. Look for nearby amenities such as parks and community centers.
You also need to consider if the neighborhood is established or up and coming; the first means paying more but also charging more right from the start while the second means paying less and charging less at first, then increasing rent as the neighborhood blossoms. You should probably skip neighborhoods where you can purchase cheap, but there are no clear signs of development.
Lower property taxes
Property taxes vary from city to city, and there may be several cities that fall within your ideal radius. While you do not want to sacrifice a good neighborhood for cheaper property taxes, it could be the deciding factor between two excellent properties.
A stable job market
Reliable tenants will have a stable job and therefore likely live in a lively job market. In areas where work is scarce, it will be difficult for your tenants to find new employment if they are let go from their current job, leaving you both in the lurch. A good job market helps to ensure both of your livelihoods.
While there may be other features to consider, these offer an indication that a property will be profitable.
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