- October 16, 2020
- Posted by: Editor
- Category: Uncategorized
“What makes a good income property?” is always the question asked by new investors in income property. There are many variables that go into answering that question.
In this article, we outline what makes a good income property and how to find an income property for sale that will generate a good return on investment.
We will get to finding income property for sale but knowing what a great income property is and finding one are not the same. While knowing how to identify a good income property investment is helpful, you must first generate a list from which to choose. Here’s how to do so.
It helps to first start with a real estate market that is likely to be profitable for income property investing.
Income Properties Analysis
Positive cash flow is typically what most real estate investors want from a new rental property. If you are a buy and hold investor planning to invest cash and park equity, this story is not ideal for you. The focus is on those who want to generate revenue with the least investment practical.
Before analyzing a dozen income properties for “cash flow,” it’s best to understand that the decision you make now can be one you will need to live with for many years. Only buy income properties with potentials to be a good home.
Income property with potential has a must-have and must-avoid list. Let’s start with the avoid list:
- Septic systems
- Illegal spaces.
- Income property without parking.
- Any income property with pricey lead paint, asbestos, hazardous insulation, or other money traps
- Private wells
- Multi-units without separate utilities
Now that we have created a list of what to avoid, one can sum up the must-have quite easily:
- Public sewer and water.
- Legal-to-rent space.
- An inspection that reveals no unmanageable hazards.
- Separate utilities if the unit is a multi-family home.
The basic premise of a positive cash flow income property analysis is to determine which of the choices you have available to you will return you the most cash flow with a given investment of your money upfront.
Size and Type of a Good Income Property
What type of property might make a good rental?
The various choices of rental property are single-family, duplex, multi-family, condos (also called apartments), and vacation properties. There is no single perfect answer for which of these is ideal for you today. If you are trying to break into the world of rental property investing, an owner-occupied duplex or multi-family has huge advantages for you. You can live in one half and still use federal low-interest loans to finance the entire investment property. While this type of investing has some easy to understand rules, it is a gateway many investors use to start in this industry.
If you already have a home and also have enough of a down payment to obtain a bank loan on a rental, your budget may drive the next pair of choices. Your percentage ROI may be better with a small single unit. However, if you can stretch the budget to purchase a multi-family, you may earn a higher overall ROI. In addition, multi-family units are small businesses in themselves. They also offer great cost-side efficiencies. For example, there’s always something to maintain and repair and things like trash removal and other such costs.
Classic Rental vs. Short Let
One final consideration when searching for an investment property is how you plan to rent it. Will you use a classic one-year lease? Will you rent shorter term to tenants in transition using a month-to-month plan, or will you opt for the new trend, short-term Airbnb renting?
There is certainly no right or wrong answer. Many first-time real estate investors who already own their own home find that a rental property they can themselves use, and also rent short term is ideal for their lifestyle. Only you know which type of investing will work best for your current lifestyle. We offer just one last tip in this section; Be certain that the investment property can legally be used as a short-term rental, or a rental at all, if you opt for a newer, less traditional plan.