7 Features of a Profitable Rental Property

If you are thinking about buying a new property or want to rent out the one you already own, you may wonder how to go about it. Numerous factors will influence how much profit you can make from a rental property. So to help you, we have decided to talk about the seven features of a profitable rental property.

tiny red model homes on a table

1. A Property That Is Worth Your Money

If you wish to make sure you have a profitable rental property, the first thing you need to do is to know if it’s worth your while. You need to consider if the property is worth your money in both its existing and upgraded form. How much rent are you likely to make every month, and what is the cost of repairs and renovations? These are the kind of questions you should be asking yourself ahead of time. An ideal rental property should yield at least 12% of the purchase price in yearly gross rent.

A man stacking coins on a table
If you want a profitable rental property, you must make sure you can make a return on investment.

Use the one percent rule to help you figure this out. The monthly rent you will earn should be at least 1% of the house’s worth. This is one of the most important characteristics of a lucrative rental property that seasoned real estate investors look for. You may also consult with a financial advisor or a property manager if you wish to make the best decision before making the purchase. This is because no other profitable feature in your rental property will be able to compensate for the money you will lose if you overspend on the property itself.

2. Ideal Location As One Of The Main Features Of A Profitable Rental Property

The last thing you want is to be trapped with a rental property in a decreasing region rather than one that is steady or growing. A city or location with a rising population and a redevelopment plan will provide an ideal investment opportunity. This doesn’t mean that you should only look to invest in the downtown area of a city or places with a large population. Likewise, it doesn’t mean that you should only rent a property in a big city. Renters in small cities can manage to find excellent properties, and they can reap additional benefits. So even if working in a smaller town, you can still choose a great location. In any case, you should focus on the following factors: 

  • Neighborhood: The location of your rental property affects both the renters and the vacancy rate. Depending on the surrounding area and what there is to do, there may be more or less demand for renting.
  • Schools: If you want to buy family-sized homes, check out the local schools. Schools affect the value of your rental investment when you sell.
  • Taxes: Property taxes vary greatly by location. Any rental property investment should be taxed thoroughly. High property taxes may not be a concern if you find a property with long-term renters in a better community. You can get tax information from neighbors or the municipality’s assessment office. Find out if the tax rate is expected to rise.
  • Crime: No one wants to live in a city with great criminal activity. Whether buying your first home or a rental property, get reliable crime data from the local police or library. Look at vandalism and other crimes. Note if the crime is increasing or decreasing in the area and if police are present.
A man holding a phone that is displaying a map for local butchers
One of the most important features of a profitable rental property is the location.

3. Potential for Cash Flow

One of the most crucial variables to consider is cash flow when you wish to invest in a potentially profitable rental property. After all, the main goal of renting out property is to make money. Therefore, you need to make sure that you have an idea of how to find tenants and how to reduce the tenant turnover rate, as well as an idea of how long it will take you to do so. If you, however, find that you can’t focus on all of those things, the best thing you can do is hire a professional property manager. With their help, you won’t have to micromanage or worry about anything related to your property and cash flow.

4. Potential for Growth

It is critical to understand the possibility of future development and the direction of real estate prices. When you determine your rental property’s profitability, you shouldn’t just focus on the short-term gain. A great feature of any property is its potential to grow in value over time. In some cases, this potential growth in value can even offset lower rent and any other financial setback that may occur on the property over time. You can benefit from this growth by selling your property or simply increasing your rent. You just need to pay attention to the development surrounding the property and the market trend in the area. These markers will point to potential growth.

Keep in mind that there are many things you can do to influence and increase the value of your property. From adding square footage to improving the curb appeal of your property, there are many small and more significant tasks you can take on to up the value of your home. But be careful – significant renovation projects will increase the value of your property, but they will also bring quite a few worries and additional expenses. One such expense is storage.

Completely re-doing your kitchen, bathroom, or any other room in the house will entail that you empty out the contents of the area. Thus, unless you have plenty of free space around your home just waiting to be filled with extra furniture, you will need to find a suitable storage solution in your vicinity. But be careful – not every unit will be the right one. Most often, renting weather-resistant storage containers is the best option if you live in a hot climate and you want to keep your items safe from damage and moisture. Otherwise, you’ll only be facing additional expenses once the renovation projects are done, and you take your items out of storage.

5. Safety Measures In Place

Any profitable rental property needs to have proper maintenance. Failure to promptly handle rental property upkeep concerns might lead to difficulties down the line. Whether it is in the form of costly repairs, a hard time keeping current tenants, or finding new ones. If a tenant moves out, you may want to take advantage of the empty property and do repairs without the burden of scheduling conflicts and disrupting any present renters. When seeking a new tenant, a rental property in excellent condition is significantly more likely to attract a higher-quality renter. Even if it’s just a simple leak, you need to ensure that you have contingencies in place to prevent any serious damage. 

A smiley face spray-painted on the ground.
If you have security measures in place, you will have a lower tenant turnover rate, making your rental much more profitable.

6. Homeowners And Landlord Insurance

Homeowner’s insurance, also known as house insurance, is something every landlord needs to have. If you wish to take out a loan to buy this property, this is a requirement. Almost all mortgage firms require borrowers to have insurance coverage for a property’s full or fair worth. If you don’t, you will not be able to get a loan. Furthermore, homeowners insurance is beneficial even if you don’t need to take out a loan. If something happens to your property or something gets stolen, you don’t want to pay out-of-pocket for it. Furthermore, it would help if you also considered getting Landlord insurance. This sort of insurance often covers property damage, loss of rental revenue, and liability protection if a tenant or visitor is injured.

7. Availability Of Physical And Social Amenities

The last of the seven features of a profitable rental property that we will talk about is how available social amenities will be to your tenant. Know that the investment in rental property flourishes in places close to popular destinations and facilities. These include shopping malls, gyms, medical institutions, and restaurants. This also includes the availability of public transportation and how easy it is to get from the property to all the places mentioned. Thus, consider the property’s location when deciding whether to purchase it.