Top 10 Features of a Profitable Rental Property

by | Apr 22, 2016 | Financial, Landlord & Tenant, Mafadi, Property, Property Management |

Top 10 Features of a Profitable Rental Property

Buying property for pure income reasons can be a bit daunting, simply because of all the landmines that will eat into your profit margins from time to time.  It is for this very reason that we need to ensure we made the best choice we could when it comes to that final pay day. Have a look at our top 10 features of a profitable rental property, they may just save you from one of those property rental landmines.

Thorough research is a must

Before you run to an estate agent I recommend that you start by first researching what you want from your new income property.

What aspects are important to you,

  • Do you want to self manage your rental property and be a landlord, distance becomes an important factor
  • Do you want to get a property management company to manage it on your behalf, distance becomes less important

Also there are different investment property options available, like the various residential options as well as the more commercial options. Each of these different investment options has their own pros and cons.  It is your job to do the necessary research to ensure you make the best investment you can.

Research I have done for you,

Want to be a landlord consider these articles first:

Considering using a Property Management company:

The important part is not to have pre-existing ideas about the type of investment properties available to you.  Consider all options with an open mind, consider their individual pros and cons, location and rental opportunities before deciding if a property makes the short list or not.

Let’s consider our Top 10 Features of a Profitable Rental Property

1. Neighbourhood

The quality of neighbourhood will influence the quality of tenant, rental rate, vacancies and evictions.

  • Lower income neighbourhoods tend to have more vacancies and evictions. But they fill up fast again with a larger tenant pool to choose from.
  • Higher income neighbourhoods tend to have larger vacancy periods, less evictions, but with fewer tenant options.

2. Property Tax,Utilities and other expenses

Property tax and utilities are not the same across the board, there are several factors that will influence your tax percentage.  An example, commercial property has a higher property tax and utilities compared to residential properties.  Lower income neighbourhoods are also taxed less than higher income neighbourhoods.

Generally this is something most buyers forget to truly consider, but I would recommend you make a proper analysis of each property on your short list in regards to the property tax and utilities bill.

Also you should consider putting your rental property on a pre-paid systems.  Making sure that you as landlord can’t get into trouble for the electrical bill, if you ensure that the pre-paid meter doesn’t get breached.

You should also remember those other pesky expenses like insurance and general maintenance.  The general rule of thumb is that you should put 10% of your monthly rental rate away for maintenance.  This is before you start deducting expenses like taxes, utilities, mortgage and insurance.

3. Schools and Amenities

When it comes to the selling of your rental property your potential buyers will consider elements such as schools and the surrounding amenities.  They will in particular consider the quality of them, so should you.

A poor quality school or dodgy shopping centre will reflect negatively on your property.  The entirety of the neighbourhood will influence your rental rate as well as your selling rate.

4. Crime

It may seem obvious that crime will have an influence, but very few property buyers actually take the effort to do their proper homework on the crime in an area.  Also don’t ask the estate agent or the seller, they will tell you the crime is low and getting even lower – what advantage is there for them to tell you the truth if it’s negative for them.  Do your research, find the local newspapers statistics, they tend to be somewhat accurate and up to date.

5. Job Market

An area with increasing job opportunities will lead to an increase in possible tenants.  Ensuring that your rental property could benefit from this.  Keep your ear close to the ground to hear any whispers of possible urban developments, they will attract new tenants.

6. Future Development in the hood

The municipal planning office will have all the future development and building permits on record.  Go have a peruse and see what is coming to your potential neighbourhood.  Are there any new office parks, complexes and commercial zoning.  The little birdy can just maybe give you an indication if you might make a fortune or if you might lose a fortune.

7. Number of listings and vacancies

This bit of research might just be one of the most valuable bit of research you have done for your rental property.  Understanding the vacancies in your potential neighbourhood will give some indication if the neighbourhood is “health” or busy going “bad”.  A growing vacancy is alarming, you should investigate in detail to why this is occurring before buying into the hood.

High vacancy with few tenants options lead to lower rental rates

Low vacancies with several tenants options lead to increase rental rate

8. Rental Rate

The rental rate will be a major player as this is a rental property.  As such you need to have a clear and accurate understanding of what rental units go for in your neighbourhood.  Will the average rental rate cover the expense you need it to cover.  Will a few months of vacancies be the death of you.

When considering the finances of an investment property you need to ensure that you can withstand a few bad months.  None of us want those months, but chances are that before your property is done being paid off you would have had to go through several bad months.  Make sure this doesn’t cost you your pension, buy cheaper:)

9. Fixer uppers or new

Tenants don’t want to move into a fixer-upper simply because they are paying a rental rate for a relatively modern fixed-up residence.  But when buying a property for a rental investment you should consider buying a small fixer-upper.

This way you can buy for less, fix the joint with some money and gain a higher rental rate.  You should however have a very clear understanding in how much the fixing will cost.  I recommend you take your contractor with you to get a proper and accurate quote.

10. Parking

Yes my last point is parking, it may not seem like a big concern, but I can assure you that your tenants will want parking and secure parking.  It is for this reason that I mention it last, because parking is one of those make or break moments.  The property can be perfect, but if there are no parking or no way to add parking, well then the property is a bust, especially in South Africa.

If you find this article informative, then you will love our Wrong Assumptions about Rental Rates article.  Here you can learn more about making the most of your income property while avoiding those property landmines

 

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Written by Lizl Brink, Lizl is copywriter and designer based in Johannesburg, she is also a frequent contributor to the Mafadi blog, and as an Urban investor and rejuvenation shares a passion for urban regeneration, go check out her personal portfolio here
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