What to Look For When Buying Renting Properties

Rental properties can be a great way to generate income while leveraging creative investment strategies to minimize your taxes. It’s important to be selective when choosing properties, however, to ensure you are getting the most rental income with the least amount of stress and time involved.

One of the first ideas or concepts we like to share with our investors is something called the “one percent rule”. The one percent rule is essentially that you receive rent that is at least 1% or greater than the cost of a house.

As an example, if you buy a home for $100,000, then it should rent for at least $1,000. In parts of the country, like the midwest or south, you can buy a rental house for around $50,000 and rent it out for say $850-$1,000 and make a really great decent return.

Once you’ve settled on a general region, you’re going to want to narrow down cities and neighborhoods by:

  • Crime Rates
  • School Rankings
  • Job Diversity
  • Income

A really good way to find some of this information is to go on a website called www.Trulia.com. Type in the address of the property you’re looking at or any property that’s in that area and then scroll on down and they have a section with schools and a section on crime. It will give you a real quick visual. If it’s yellow or green, it’s low crime area. If it’s red or orange, it’s a high crime area. We recommend you stay away from those areas as tenants in high crime, lower income areas typically take less care of the home, have higher delinquency and eviction rates that create stress and unexpected expenses.

The quality of K-12 schools are also important and help attract tenants if your neighborhood schools are good. As you do your market research, you might want to check and see if there are universities in that neighborhood. It’s not that you necessarily want to rent to a college student, but they provide stability to rental markets that otherwise might fluctuate with the economy.

If you are renting out of state, it’s a good idea to stick to cities and suburbs that are in metro areas with at least a 50,000 population or more, and have a diverse job base (as opposed to single industry areas that can go through major boom-bust cycles).

You can also check the local rental amounts. There are a couple of websites like Rentometer.com and RentFaxPro.com, where you can gather information about specific neighborhoods and see what the general area is renting for.

Lastly, observe the local demographics to select a property size and type that is in high demand. If you’re in Naples, FL catering to baby boomers, a nice condo near a marina might be great – if you’re in a family oriented suburb, a 3-4 bedroom house would likely rent quickly.

Whatever you decide, gather information from trusted sources and work with reputable, licensed individuals to create a rewarding landlording experience.