Created on Friday, April 07, 2017
Updated on Monday, February 26, 2018
by Land Century
Before we talk about specific properties that rent for a lot, lets take a look at the top characteristics that renters will look for in a property:
Property Factors That Lead to Higher Profits
1. Property Taxes: The property tax rates in the south are favorable, while theyre astronomical in the Northeast. Every town will have an assessment office that will help you learn more about property taxes in the area. If property tax rates are high, youll end up with less money in your pocket if rent prices dont compensate for the higher rate.
2. Crime: Properties in areas where crime rates are high may be cheaper, but theyre less desirable. The goal is to find long-term tenants, and crime-riddled areas have a tendency to have a much harder time keeping tenants for the long-term.
3. Schools: The better the schools in the area, the more long-term tenants youll find. People want to send their kids to good schools, and this will factor into rent prices. Reputable universities and colleges in the area will also be a benefit if you want to rent out the property to students.
4. Job Market: One of the most overlooked factors that go into rental prices is the local job market. Job markets will dictate a higher rent price. If the local area is teeming with jobs and opportunity, people will relocate and wont mind paying more for a rental.
5. Rent Prices: Of course, the rental prices in the area matter, too. If the rental prices are very low, youll make less after considering all of the costs involved in owning a rental. A few of the costs to consider are:
a. Property tax
b. Mortgage rates
c. Mortgage insurance
d. Homeowners insurance
e. Maintenance and upkeep
Always look into the above factors before buying a property to rent it out. If you know the factors listed above, youll be better able to understand how profitable your rental property can be. Remember, there is always a lot more that goers into the profit of a rental than just the going rental rates.
The Most Profitable Buy to Rent Properties
If you own a commercial property, youll obviously be able to secure high-paying tenants, which is a nice bonus. But if you want to find the best rental properties, this can be tricky. There is a lot that goes into the equation, but the following tips can help you find a property that is perfect for your portfolio.
Multi-family properties are very profitable, and youll be able to make a lot of money on them in the right area. A duplex is a good example of a multi-family property, and you can double your rental income as a result.
Whats nice about a duplex is that you can live in one portion of the home, while a tenant lives in the other side of the building.
You also have the option of renting out both units. This allows you to pay one mortgage, insurance premium and so on. There are also triplexes (3 units) and fourplexes (4 units) available.
And these properties are great because:
Youll own multiple units that can be rented.
You will have income from tenants even if some of the units are not occupied.
If you have the budget for a multi-family property, youll be able to bolster your real estate portfolio with one purchase.
And if youre buying a property that already has tenants and leases in place, you can use these leases to show that you have enough income to purchase the property. This will allow you to get a higher mortgage.
Rentals in Tourist Areas
People forget that tourist areas are hotspots for rentals. People often like to rent out a home when theyre on vacation or visiting family, and in tourist areas, this can lead to a huge profit. A quick look at beach homes in New Jersey shows that many rentals are renting for $400 - $600 per night in the summer. This comes out to $12,000 - $18,000 a month for the 3 summer months, or $36,000 - $54,000 just for the summer season alone.
And when breaking this down, youre not even accounting for offseason rental rates, which are much lower, but still provide ample income.
MarketWatch did a study on rental properties, and the profits that they can achieve given the cost of the rental. The site found that the most profitable areas are:
San Jose, California: $8,927 profit per month
San Francisco, California: $6,078 profit per month
But these markets have exceptional rental prices that are only common in the area because many people work in Silicon Valley.
Short-term profits from Zillow also show how much money can be made per month on a home based on a six-year outlook. The cities that provided the most profit are:
Oklahoma City: $536 per month
Miami: $515 per month
Denver: $355 per month
Appreciation in home prices is also something to consider. A rental alone will not make you rich. And if you want to hit six figure income levels off of just rentals, youll need to own numerous rentals (10+) to be able to achieve your goals. But even a 10-rental portfolio may provide just $2,000 - $4,000 per month in profit in most cases. The appreciation of the homes value over the lifespan of the mortgage should be considered, too.
If home prices in the city are rising 10% per year, the home will be worth double in 8 10 years, which means you can sell for a major profit. Of course, appreciation rates are often much lower than 10%, but the goal should be a diverse portfolio with properties to rent and sell in the long-term.