4 Ways to Spot a Rental Property Gem
Marni Epstein-MervisSeptember 13, 2018
Thanks to the popularity of home rental sites like Airbnb and VRBO, more and more people are searching for rental properties to cash in. But how do you find a property that’s a good bet to turn a profit? Whether you’re just looking to supplement your income or make real estate your full-time gig, here are four tips to find a home with some serious income potential.
Seek Out Investor-Friendly Cities
Given the time and effort that can come with legally separating units, Evan Harris, Co-Owner of SD Equity Partners, suggests going one step further in your real estate search. When it comes to finding a home with income potential, “look for cities that allow for the creation of in-law suites and split addresses. Transforming a garage into an in-law suite is a fantastic income generating move.” Every real estate market and municipality has different laws and regulations. Inquire with the local housing department in your real estate market before touring homes for sale.
Search for Up-and-Coming Walkable Neighborhoods
Once you decide on one or more cities to focus your search, it’s time to zoom in on neighborhoods. Homes with nearby shopping and dining are sought-after by renters – no surprise there. To find a real gem, take the long view. Keep an eye on neighborhoods that aren’t within walking distance of hot shops and restaurants now, but will be. Harris says, “the modern consumer will pay more for walkable neighborhoods. The trick to seeking out income properties is to look in neighborhoods that are currently undergoing construction in their downtown areas.”
Look for Legally Separated Units
After focusing on neighborhoods that have promising developments in the works, look at homes that will let you rent them out right away. Look for homes with legally separated units – especially if you’re planning to live in the home you buy as a rental property. Brian Davis, Co-Founder of SparkRental, notes that, “the classic ‘housing hack’ is to buy a duplex or triplex, which has legally separate units. That typically means each unit must have its own utility meters, and must have its own legal postal address.” When you purchase an income property like this, you’re in a better position to start renting immediately.
An income property that does not already possess legally separated units will likely require subdivision and jumping through some legal hoops with the city, both of which takes time and money. These factors will affect whether or not your income property will have positive cash flow.
Figure Out the Cash Flow
Speaking of factors that affect cash flow, one of the biggest mistakes any buyer can make when buying an investment property is picking one saddled with heavy monthly costs. “The math must make sense,” says Davis. “The property must have positive cash flow even after accounting for the mortgage payment, property taxes, landlord insurance, vacancy rate, average maintenance costs, property management, and other fees.” Make sure to tally up all the potential costs as you’re assessing homes. The last thing you want to do is gloss over an expense that turns the profits you’re expecting upside down.
Looking for an Income Property?
The secret to buying a home with income potential means both knowing what to spot in a home and making sure the numbers work out in your favor. Get more tips on how to buy an income property and what to look for here.