Updated: Feb 20
Most people aspire to buy their own homes and will go through at least one real estate purchase in their lifetime. It’s easy to be victimized if you don’t know what you’re doing when you’re attempting to buy a rental property. The more you educate yourself about making a real estate purchase, the more likely you will be pleased with the outcome. Try not to focus on attempting to time the market and comprehend when is the best time to purchase. For various reasons, trying to predict the optimal market conditions is impossible.
The moment you should buy is when you’ve found a desirable rental property and can afford it. A cyclic business, real estate goes uphill and downhill over periods. Remember, while you can like a rental property, emotions should play only a little part in its purchase if you don’t want a broken heart. Purchase decisions made based on emotions often turn out badly. Many people confuse an instinctive reaction to a property with an emotional one. It’s a great idea to listen to your instincts because they’re often telling you that a particular property represents a great value.
Online Property Finders
The internet has an unlimited selection of real estate websites that allow users to search for rental properties to rent or invest in. Real estate investors can use these websites to find all sorts of investment properties, from single-family homes for rent, apartment condos for rent to commercial property for rent. If you have a specific rental listing in mind, then for sure, there is an online property finder explicitly designed to look for that property. Check out some of these sites below:
Mashvisor is an online real estate analytics platform designed to help real estate investors find and evaluate investment opportunities in the US housing market. Based on large amounts of data and property listings, Mashvisor uses specially developed formulas to provide investors with significant real estate metrics to determine an investment property’s profitability.
What to Look For
When shopping for an investment property, know how to measure its performance and project its return on investment so you can predict what to expect from investing in that property. As a real estate investor, you will eventually come across several real estate metrics that determine an investment’s profitability.
The most important are:
1. Capitalization rate—Cap rate expresses the profitability of a real estate investment by dividing its net operating income (NOI) by its current market value. The Cap rate is considered the purest form of return rate because its calculation is independent of the financing method. Generally, a higher cap rate corresponds to a higher return on investment (ROI).
2. Cash flow—Positive cash flow properties are properties with a rental income higher than the operating costs. While it is advisable to look for investment properties with a positive cash flow, a well-informed real estate investor can turn a damaging cash flow property into a positive one.
3. Occupancy rate—Occupancy rate is the percentage of time a rental property is occupied or leased out to a tenant. This real estate metric is essential, especially to investors interested in short-term rental properties like Airbnb. Intuitively, higher occupancy rates are deemed favorable for both Airbnb and traditional rental strategies.
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Conduct Real Estate Market Research
Real estate market research, also known as rental market analysis (RMA), is a process that helps real estate investors assess the rental potential of a specific property market. Conducting real estate market research should tell you whether or not the potential investment property will have a positive cash flow. So, how to run a rental market analysis?
Follow these four steps:
1. Evaluate the neighborhood—A “good” community is a subjective statement. The first step of RMA is to assess the area in general. Some factors to include when evaluating a neighborhood are accessibility, right school area, nearby amenities, and businesses.
2. Find comparable properties—Identifying rental comps is an important step to calculate the average rental price per square foot. Start by looking for at least three properties of the same size and physical condition. Other essential features include proximity to each other and the number of bedrooms.
3. Calculate the price per square foot of rental comps—Using rental data, calculate the average price per square foot for the rental comps. Since it is rare to find properties 100% identical, adjustments must be made to account for differences.
4. Determine the cost of listed properties—A quick analysis of the neighborhood housing inventory will show these properties’ prices. Based on the average rent per square foot, you can easily find how much rent to charge for each listed property. A positive cash flow property will have a monthly cost lower than rental income.
Tips on Researching Investment Properties (Conclusion)
Consider the following investment tips the next time you ask how to find the best rental properties in any market.
1. Get to know the neighborhood. Evaluating the area you are considering investing in is an essential step before buying a rental property. Find as much as you can about the community, and drive around to get a real feel for the surroundings.
2. Research the economic situation of the area. Employment and population growth are good indicators for a healthy housing market. How to find the best rental properties? Look for cities with the high job and population growth for cash flow and equity growth.
Below are recommended books that can help with finding great rental properties: