Looking for a new investment property to build your portfolio requires multiple insights to analyze and select a profitable rental! When diving into a new investment property management endeavor, finding rental properties that help you generate optimal ROIs is crucial. That's why it's helpful to map out your plan in advance or identify what goes into operating the perfect investment property.
Our Salt Lake City property management team is ready to dive into how you can bring crucial pieces together when analyzing the ideal investment property. Let's take a look.
Start With a Rental Market Analysis
Since you know rental income will be your profitability bread-and-butter, it's vital to understand what type of rental rate you can get in the neighborhood you're exploring. If you already have your eye on a property, take time to run the numbers and estimate the monthly rent amount you could collect for it.
For example, starting with the going rate for a property similar to the one you're considering can help you understand the ballpark of competitive rents in the area. Then, dig deeper by conducting a rental market analysis. If you're not sure how to get into this type of analysis, one of the best Salt Lake City rental agencies can do this for you.
A property manager will evaluate the neighborhood for several factors, such as:
- Proximity to amenities
- Access to transportation and highways
- Top-rated schools
- The walkability score
- Entertainment, dining, and shopping nearby
Next, the property manager will see how the property compares to other properties. They will look for similarities, including:
- Neighborhood location
- Lot size
- Amenities available
- Condition of the house
- Number of bedrooms and bathrooms
Once they find a few houses with these similar characteristics, they will look for an average rental rate among these similar houses to give you an idea of an estimated monthly rent amount for your property.
In addition, it's important to make adjustments based on what your specific property offers tenants. For example, if the new property has amenities that the comparison properties didn't have, such as a pool, you can probably raise the estimated rent amount higher than the other property.
Another factor that can move the needle up is the occupancy rate in that area. An investment property management expert can let you know what that is. High demand can lead to higher monthly rents!
Consider the ROI
It's also vital to make sure your next investment will bring the ROI you need. What's your goal? Every investor has different needs. However, property owners need enough cash flow and monthly rental income to cover the mortgage payment, taxes, and other expenses (while generating a profit).
One way to help ensure the property will bring in enough rental income is to check it against the 1% rule. It's a simple rule that states the monthly gross rental income must be at least 1% of the property's total purchase price. However, don't let the simplicity of this calculation cause you to leave out additional factors that could impact that rent amount.
For example, 1% could be too high (or too low) for the neighborhood with your insights from the rental market analysis. If so, trusting real-time data can be better than relying on an estimation formula to set the right rental amount and ensure a new property is worth the investment.
Research the Area and Look into the Future
Maybe the property you're considering has met all the criteria. It seems like an ideal place to generate the rental income you need to reach your goals. However, there is one more thing to consider. What will the area be like five or ten years from now?
Will the property still be able to produce the ROI that it does in the beginning? How can you know? In addition to the market analysis that gives you insights into "now," conduct additional research to learn about the area's future and how that could impact your returns.
Future development can be a positive thing for your property's future, or it can leave your property in an unattractive location that doesn't appeal to renters.
Also, do you foresee tax hikes? Are there signs of extensive development and property growth, which could drive up the cost of everything in the area (meaning you may be able to charge more for rent in the future)?
Or do you see low-income housing plans being developed for the near future, which may bring down the price of your rental due to the overabundance of rentals on the market? Work with a property management company to analyze the area and apply those insights to the future success of your rental property.
A Salt Lake City Property Management Company Has the Insights You Need
Now that you have all the parts of the puzzle to find a successful investment property, you're ready to start your search or complete the purchase of a rental unit you have your eye on! However, if you need more insights or resources to make an informed decision, a Salt Lake City Property Management company can help. Reach out to our team at Reeder Asset Management and let us help you add the right properties to your portfolio!
What does an ideal investment property look like? Find out when downloading our free resource, "The Biography of the Perfect Investment Property."