What Makes a Good Rental Property?

Every property is different, so there’s no one-size fits all rental property. But, here’s a list key criteria one should look for when selecting an investment property to rent.

• The rental property should be in a desirable area where the demand is strong and expected to remain strong. Areas where the majority of homes are owner-occupied helps ensure competition for renters is relatively low, as well.
• Homes with a minimum of 3 bedrooms and 2 baths rent best. Try not to exceed the largest average size home in your area.
• Your investment should be cash flow positive. Be sure to include budgets for maintenance and repairs, depending on the age of the home. See our helpful article about new vs. older homes for more information.
• Smart floor plans that speak to the biggest market segments are easier to rent. Gen X and Millennials make up almost 2/3 of all US renters. These renters tend to prefer open-concept designs.
• A locality where there is positive population and financial growth guarantees success when you sell. While cash flow is important throughout the holding time of your rental property, the appreciation is also critical. Typically the appreciation on a reasonable holding period (5 years or more) should account for 2/3 or more of your overall return. Therefore, it is key that the property will be in an area that is expected to steadily appreciate.
• The price point should be average for the area. We recommend focusing on properties that appeal to first time buyers or first time upgraders. The market for first time buyers/upgraders is large, and tends to suffer least when market conditions turn bad. This will give you better liquidity in your rental property. When the economy takes a downturn large homes and vacation properties are hit hardest, so we suggest avoiding these markets.
• Look for floor plans that are geared to families. These will have two car garages, the master bedroom separated from the other bedrooms, and a simple functional backyard. A patio or other improved outdoor space are also great features to have in any rental property.