What defines a great rental investment property? For many people, it’s just the price. But the truth is a bit more complicated. Several factors will affect your property’s return on investment over time. Some of these (like buying price) are obvious, others not so much. In this article, we’ll look at some of the most significant features of a great property and explain why they’re so important
#1 it’s in a good neighborhood
The neighborhood where you purchase a property will affect the types of tenants you’ll have and how long they will stay. For example; if you buy a house close to a university, you’ll likely have students as tenants, and it may be challenging to fill vacancies during the summer (when schools close for the holidays).
There are other neighborhood-related factors to consider, like;
Neighborhoods that have multiple entry points and are located near a city’s main transit routes tend to perform better than those that aren’t. Commuting (to and from school or work) is a significant part of people’s lives, so they will prefer neighborhoods with convenient access to these amenities over those that don’t.
Appearance matters too. Large trees, beautiful landscaping, and quick access to community spaces and parks are great attractions. Additional amenities like grocery stores, shops, and restaurants are helpful too.
Few listings and vacancies
While an unusually high number of listings and vacancies may be the sign of a seasonal cycle, it could also indicate that a neighborhood is in decline – it’s imperative that you figure out which one it is. Either way, high vacancies will force you to lower rents so you can get tenants.
#2 Favorable Tax requirements
There will be significant property tax variations across your target area. Some towns will discourage rental businesses by setting unusually high permit fees. Others may impose unnecessary bureaucratic requirements. These factors will affect your investment returns, so you should know how much you’ll pay before committing to an investment.
It’s worth noting, however, that high property taxes aren’t always a bad sign. If you’re in a good neighborhood with low vacancy rates, the returns could offset your expenses.
You may find tax information at the municipal assessment office or consult with homeowners in the community. You may also want to find out whether any property tax increases could happen in the future. A town facing financial hardships may increase taxes further than you can conceivably earn from rent.
#3 It’s in a region with reasonable Employment rates
Locations with increasing job opportunities generally attract more tenants. Research suggests that significant employment changes at the nearest medium or large-sized firm will increase or decrease rent by at least 2%. If you see announcements or hear talk of a large company moving into the area, it’s a strong indicator that workers will be moving there.
While it’s usually a good sign, it may cause housing prices to go down, depending on the company’s business. An excellent way to tell is by putting yourself in the tenants’ shoes. If you’d want that company in your neighborhood, you renters probably will.
Tip: There are several portals you can visit to study local employment rates in the UK. You may consult with a real estate agent or visit a local library to confirm your findings.
#4 There’s minimal crime
Studies have shown that violent crime hurts local housing values. A 1% increase in neighborhood crime (number of violent crimes per acre) will reduce prices by between 0.2 and 0.6%.
No one would enjoy living next to a hot spot of illegal activity. So it stands to reason that properties close to those areas will have long vacancy rates, while those in low crime areas will be more successful.
Consult with local police for accurate crime statistics for locations you want to invest in. You’ll want to focus on the rates for vandalism and other serious and petty crimes. Don’t forget to assess whether criminal activity is on the rise or receding and determine the frequency of police patrols in your target neighborhood.
#5 It has a great lot
This one will probably surprise you. Let’s assume you have to choose between two homes standing next to each other in a perfect neighborhood. House A has a large lot but needs repairs and updates. House B is in excellent condition but has half the lot size of the first. What choice would you make, assuming both are similarly priced?
The correct answer here is house A
Why: your house is a depreciating asset on its own. In contrast, your lot will retain its value or even appreciate. If you razed both houses to the ground, the larger lot would be more valuable. A large, well-shaped, well-situated lot is a good indicator that a property would make an excellent investment. Less attractive houses can always be renovated, expanded, or replaced entirely. In contrast, a lot can always be changed.
#6 Future development
Large scale Government and commercial plans for new hospitals, schools, transportation, and other infrastructure will often improve the value of properties in the vicinity.
However, it is worth noting that these changes may not always be positive. A house near a hospital, fire station, or school may depreciate because of noise and traffic. Consider how all these planned developments will affect the desirability of your home, then plan accordingly.
It’s not prone to adverse weather events. You’ll want to avoid properties built in disaster-prone regions. These areas have more expensive insurance requirements. The added costs could cut into your investment returns.
It always helps to do due diligence before purchasing an investment property. The tips we’ve covered in this article should help you make an accurate preliminary assessment on whether a planned investment will pay off.
Obviously, there’s lots more to consider. If you’d like to learn more, don’t hesitate to join our community. We’d love to help you enhance your property investment knowledge.