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What Makes Rental Properties Profitable?

July 6th, 2017 |

Owning a rental property (or two) can generate significant income. In fact, a report from ATTOM Data Solutions puts the average annual gross rental yield on single-family homes in 375 U.S. counties at 9% for 2017. Of course, there’s no guarantee your real estate will turn a profit. But there is one universal quality that will ensure your success in a rental market; desirability to renters, of course!

Owning a place that people actually want to live in is important in acquiring reliable tenants. Desirability can sometimes seem like a tough quality to judge, but there are a few universal qualities that are sure to have renters flocking to your property.

What Makes a Good Rental Property?      

A good rental property can be determined by two key factors: desirability for renters and proper value or price point. Some rental markets are simply more profitable than others, so, while it may go without saying, you’ll need to consider location. ATTOM has a roundup on the best markets for buying single-family rentals nationwide, but if you want to invest close to home, bet on a well-populated and safe neighborhood. (A solid job market can’t hurt either.) Beyond that, here are five ways to tell if you have a good rental property either currently on your hands or available as a profitable investment:

1. Blend in; don’t stand out!

People like living in a neighborhood they’ll feel comfortable in, where they’ll be surrounded by other like-minded residents. Having a property that fits in with the overall demographic of the surrounding area will ensure that it appeals to a majority of renters looking to live there. This is a key contributor to desirability!

For instance, if your property is close to a college, affordability and convenience will be most desirable. If your property is located in a suburban area with a lot of families, safety and privacy will be key selling points. A stunning multi-level condo with modern decor and a roof deck might seem very desirable, but if it’s in the middle of a community populated mostly by retirees and senior citizens looking for traditional single-level living, you’ll have a little more difficulty finding renters to fill that trendy townhouse.

2. Close proximity to amenities

Consider the neighborhood and if the property is close to things people living in that area want (parks, restaurants, movie theaters) and need (public transportation, supermarkets, gas stations), you’ll have a much easier time finding renters. If your renters are likely to be students, being close to bars and concert halls will be a plus while if your renters are likely to be families they’ll probably want to be farther away from the hustle and bustle of social venues. Give a prospective property bonus points if upscale eateries or high-end retailers are nearby. If residents can afford their prices, they’ll likely make good on the rent.

3. A certain amount of privacy

Parks and restaurants are nice, but just a bit of distance can go a long way. Main thoroughfares are often noisy, crowded and/or visually unappealing — three characteristics many renters will deem a turnoff.

4. Solid school system

Research suggests there’s a correlation between quality schools and property values. A 2012 study from the Brookings Institute, for instance, found home values were on average $205,000 higher in the neighborhoods with high-scoring versus low-scoring schools. Stats aside, renters with kids will likely look to live in a solid school district.

5. Newness

Old houses have character, for sure, but they’re also more apt to need maintenance. New homes, conversely, can go about a decade without needing serious repair. In fact, some states require builders give buyers a 10-year warranty. Plus, many older homes lack features renters look for today, like walk-in closets, energy-efficient appliances, and master suite bathrooms.

Whether you have a property already on hand that you’re considering renting or you’re looking into investing in a new rental property, you’ll have to determine whether or not it will be profitable. Consider the desirability of the unit or home for the demographic of renters that will likely be looking to live in the area and you’ll get a good idea of how easy it will be to keep the space occupied. Renters will be willing to pay more for a place that matches their lifestyle!

R.H. Blanchard is an experienced contract and design expert with more than 10 years of experience in home remodeling and property management in the greater Boston, MA, area. Feel free to contact us today with any questions you may have about investment properties in Boston!