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What makes an investment property profitable?

Investing in real estate soon? To help you set yourself up for success, let’s take a look at all the defining qualities that make an investment property lucrative.

The elements of profitable investment property

Great location

The potential for your investment to earn you significant returns is amplified when it’s located in the right place. That said, the “right place” differs depending on the type of investment property you own. So, what makes a great location?

  • Area amenities: What’s located in the neighborhood? Will your tenants have access to public transportation and other services? Are there plenty of dining, shopping, leisure, and entertainment options located nearby?
  • Schools: Single-family rental properties would do extremely well if they are located close top-rated schools. It will help you attract tenants and, in the long run, affect the market value of the home when you decide to sell.
  • Job market: Another must-have for a profitable rental property is the presence of job opportunities in the market. It helps attract people to the area and, in turn, to your property. With the high demand comes the potential for home values in the neighborhood to increase.
  • Planned development: While plans and ongoing construction show a trend of growth in the locale, some kinds of development can hurt your property’s chances of making a profit. Pay the municipal planning department a visit to check the plans for the neighborhood before you go ahead with your investment.
  • Safety: Criminal activity can severely impact the value and tenant retention rate of an investment property. Check the local crime statistics and note if the activity is on an upward or downward trend.

Investment strategy

This one falls on you. Your investment property’s profitability also depends on the strategy you take, and there are many options to choose from. Some investors buy and then sell, others buy to hold.

In the case of residential real estate, buying to hold can be the most profitable strategy, more so if the rental property can easily switch between short-term (like Airbnb) and long-term arrangements, depending on the market conditions and other factors.

There are real estate investors who take this route and eventually sell once they have positive equity and the property’s market value has increased.

State of the market

The health of the market can play a significant role in your investment property’s potential for profit. For residential properties, the number of rental listings and vacancies in the neighborhood herald whether you need to lower or increase rental rates in order to compete and attract tenants.

The number of available listings in the market can mean two things. First, it could be that the neighborhood is simply prone to seasonal cycles. This is most prevalent among rental markets tied to local schools and universities as students come and go. Second, a high vacancy rate can also mean the locale is declining.

As an investor, it’s important to identify which is which so you can respond accordingly and protect your investment.

Do you need more advice and tips in real estate investment? Contact us at 317.674.6949 or send an email to wanda(dotted)charles(at)cbdfw(dotted)com.