If you’re wondering what makes an investment property ideal or what makes it a dud, there certainly can be a science to it. There are many factors that will set your property up to be a passive income powerhouse, while other things may turn it into a money pit.
Seasoned investors definitely know these winning qualities like the back of their hands, but new investors may struggle to correctly evaluate a property. Even those with experience may make the wrong decision every once and a while, because you can’t always predict everything. The factors that make a particular property a ‘winner’ can vary slightly, so finding out these basic, proven qualities will help you quickly achieve your investing goals in the long run.
That being said, what are the factors to look for in an investment property that will give you the best chance for success? While this list is by no means exhaustive, as there are always contingencies to consider, its a great start for turnkey investors. Memphis Invest is also a valuable resource for passive investors and we’ll glad help you navigate the knowns (and unknowns) of purchasing a turnkey rental property.
Choosing a Single Family Rental Property: A Checklist for Success
Make sure you take these things into consideration when choosing where to invest your money:
1. Property Management
I put this on the list first because it truly plays a paramount role in the success of your investment. The property itself has nothing to do with the management team, but where the property is located and the particulars of the neighborhood are going to play a big role in whether or not a quality management company would even consider managing the property.
The best property management companies make good properties perform great by being intensely focused on managing the right properties in the right parts of town. This applies to turnkey companies as well. The best companies will tailor their services to the properties that fit within their expertise and will never try to be all things managing all properties for all investors.
Make sure you have an experienced property manager who is wise enough to limit their services to the exact type and location of property that you want to own.
Obviously, location is a huge factor in anything related to real estate. For investment properties, the location really comes down to the neighborhood. Obviously, the state and city matter a great deal as local economy, population growth, and similar factors can play a big role in the overall success of your investments.
When you consider the neighborhood, its quality plays a big factor in the kind of residents you’ll be attracting.
Things such as vacancy rates in the neighborhood and surrounding home values may also impact your property and its ability to generate positive cash flow! Also consider other factors—is it close to a college or university, which increases the likelihood of student residents leading to higher turnover rates and summer vacancies? These are things to be aware of when choosing the location of your investment property.
When purchasing a rental home it’s expected to have some property defects at first. Superficial damage is easy to fix, and even small repairs and renovations aren’t that big of a deal. But there are some problems that should bring you to pause: significant foundation issues, severe water damage, dangerous molds, or structurally unsound or unfinished properties are all reasons to back out of a purchase unless you’re a flipper. We wouldn’t recommend taking on a massive renovation when you’re looking for a buy and hold investment.
While single-family homes don’t have amenities in the same way multifamily properties do, what they can have is proximity to great amenities. How close is your property to shopping, restaurants, nightlife, and parks? Is it convenient for grocery shopping? Interstate access? Think about these things. A conveniently located home will attract a larger pool of residents and will also allow you to set premium rent amounts.
Stay tuned for more factors to consider in next month’s blog…
Chris Clothier, author of The Turnkey Revolution, manages the development and implementation of sales and marketing for Memphis Invest. He helps potential investors define their purpose for investing in real estate and educates peer companies on best practices in the emerging turnkey real estate industry. He is a contributing columnist for BiggerPockets and an experienced speaker who regularly addresses audiences of real estate investors and business professionals.