Here’s How to Tell If a Piece of Rental Property Is a Good Investment

Investing in the right piece of rental property is a great way to build wealth and earn some more-or-less passive income. But if property in the area is overpriced, or you can’t find tenants, or you can’t find tenants, or the expenses attached to owning the property are too high, then rental property might not be a good investment for you.

But how do you tell if a specific piece of rental property is a good investment for you? A lot depends on where it’s located, what condition it’s in, and what the local economy and rental markets are like. If it’s a nice unit in an area where people want to live, then you shouldn’t have any problems making a profit – as long as you don’t have to pay for a property tax hike or natural disaster insurance.

It’s in a Good Location

If you’re wondering how to spot a good real estate investment, a good location is one of the most important things you can look for.  Renters, just like homeowners, want to live close to the things they like. They want to be near bars and restaurants, shopping centers, parks, and recreational facilities. They want to be close to work or school. Choose a property that’s close to amenities to attract potential tenants.

It’s a Low-Crime Neighborhood

No one wants to live in a bad neighborhood. Check with your local library or police department for information on which neighborhoods are safe and which are hotbeds of criminal activity. You want to know the rates of serious and minor crimes, as well as rates of vandalism – vandalism of your rental property could directly affect its value. Take note of whether criminal activity in the neighborhood you’re considering is on the uptick or if it’s going down.

The Property Is in Good Condition

Ideally, you want to buy a rental property that’s in turnkey condition, ready to rent out immediately. Any repairs that you have to make to a rental property to make it market-ready will come out of your profits. Unless you have the skills to do the work of fixing up a place yourself, you’ll likely spend so much on the renovations that you won’t save any money in the end.

There’s a Strong Job Market in the Area

People want to live where there are jobs to be had, so make sure your rental property is located in an area with a strong local economy. Again, your local librarian should be able to help you find data on the local job market and whether it’s growing. You can also check with the U.S. Bureau of Labor Statistics. If employers are scheduled to come to an area, people will come to that area to work there, and you may be able to grab a property before housing prices in the area go up.

Schools Are Good

This may not matter as much if you’re renting to single people or students, but if you want to appeal to young families, you’re going to need to buy a rental property in a good school district. Most landlords prefer to rent to families because they’re seen as more reliable.

Property Taxes Are Reasonable

Property taxes can vary a lot from one locale to the next, and you want to make sure that if you’re buying a property in a neighborhood with a high property tax, that it’s at least an appealing enough neighborhood that you can charge higher rent to make up for it. Get tax information from other homeowners in the community, or check with your local tax office. Find out whether the town intends to raise property taxes in the foreseeable future.

Natural Disasters Aren’t a Factor

This might not matter so much if you can rent your property for enough money to offset the usually high cost of flood, earthquake, and storm insurance. If frequent natural disasters are a factor in your area, your insurance costs are going to be higher and that’s going to eat into your profits. That doesn’t necessarily mean you shouldn’t buy rental property, but make sure the property value and the amount of rent you’re able to command make up for the increased insurance costs.

It’s not always easy to find a rental property that will make a good long-term investment, but it’s worth doing your research. The right rental property will put more money in your pockets, so take your time and do the legwork to find something good.