Buying Properties for Rental Income

Learn what to look for when buying a rental property.

Is Rental Property Ownership Worth the Investment?

Choosing to invest in a rental property is a big decision. But according to the latest statistics, you’re not alone in making it. The rental market continues to hold steady as a $169 billion per year industry, and — according to a report by JP Morgan Chase — more than 20 million rental properties in the U.S. belong to “individual investment landlords”, also known as “mom and pop” landlords. What’s more, the census bureau reported that landlord income is solid. On average they’re earning $35,000 more a year than the median household income.

Interior shot of a modern fireplace

Still Ask Yourself if Being a Landlord is Worth it? Learn About the Risks and Rewards of Buying Income Property.

How to Choose the Right
Rental Property for Potential Tenants

While timing is one factor to consider when buying a rental property, location is likely the most important. To determine if a location is right for buying a rental property, start by identifying your ideal tenant. Consider who might be looking for homes in your target neighborhoods and what are the location needs of those preferred tenants.

For example:

  • College students will likely want to rent-by-the-room in an area close to their college campus

  • Families with children will probably want to live in a safe area with top-rated schools and in close proximity to shops and parks

  • Business professionals will want to be close to public transportation or have easy access to highways
  • Senior citizens may prefer a quiet neighborhood that offers access to local community centers, grocery shopping and their places of worship

A property’s location will influence how much you can charge for rent. You’ll want to assess the average rent in the area to determine how much you can charge in order to achieve a good ROI.

A laptop, house key and calculator on a desk

Get the Facts on What You Should Look for When Buying an Investment Property

Two men shaking hands while holding a contract

Is Owning Rental Property a Smart Move for You?

Property ownership is a big investment and responsibility. It’s important to calculate the costs and potential ROI. Income from a rental property allows you to pay down any loans from your initial investment, maintain upkeep, and hopefully, have extra left over.

But how can you determine this before buying a rental property?

There’s a simple formula for estimating if a property will be worth it. It’s called the capitalization rate (or cap rate).The cap rate is the most common metric for measuring the value of a potential real estate investment. It’s a calculation of the returns the property will produce each year, or net operating income (NOI) in relationship to its operational costs.

Here’s the formula:

Net Operating Income / Current Market Value = Capitalization Rate

While there are many variables to consider when calculating the cap rate, doing so can be crucial to understanding if buying a rental property is a good investment.

At HomeVestors®, we recommend you consult with a professional financial advisor to determine if rental property ownership is a smart financial decision. They’ll also likely be in a position to factor in potential tax benefits that can add to your bottom line.

Want to Learn the Best Ways to Value an Investment Property?

Positioned for Growth

Now is a great time to become a HomeVestors® franchise owner. As a franchisee, you’ll gain qualified leads from the We Buy Ugly Houses® marketing campaign and our proprietary real estate tools and technology will help you choose rental properties that will deliver a strong ROI. Meanwhile, our powerful network of real estate professionals will provide you with the mentorship and training you need to know what to look for when buying rental property and how to maximize your investment.

Read What Other HomeVestors® Franchise Owners are Saying