ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How To Buy Rental Property To Help Insure You Make a Profit

Updated on December 16, 2017

Real estate investors have been making money for years investing in rental property. So what’s the allure of rental property and what can you do to help insure that any investment you make when you buy rental property results in a profit?

For starters, let’s understand what rental property is.

Rental property is real estate that includes one or more family units such as a single-family house, duplex, or apartment complex. In other words, any-size real estate held for the purpose of generating income from rents are in fact deemed rental property.

The main benefit of investing in rental properties is that they are capable of producing an income stream from rents that enable real estate investors to support the debt. This real estate investing concept (otherwise known as "using other people's money") is what entices investors and drives most investment real estate decisions.

Consequently, how much income a rental property generates compared to the mortgage payment and other obligations required to purchase the property are what insure a profitable real estate investment.

In this article we’ll discuss four real estate investing essentials you can incorporate to help impart that principal and perhaps to make more profitable real estate investing decisions.

Obtain Sound Financing

Foremost, you do not want to make an investment in rental property encumbered with a loan that places an outrageous financial load on either yourself or the property. To help insure a profitable investment you need to obtain sound financing.

Fair enough, but bear in mind that loan companies structure financing in line with the investment property's potential income stream and financial strength. So you are always apt to negotiate a more favorable loan-to-value and interest rate when you present the bank with adequate and accurate projections regarding the rental property’s cash flows and earnings potential.

This is routinely accomplished with real estate analysis reports created by real estate investment software or other sources available to the real estate investor.

Survey the Rental Market

Secondly, you must carefully gauge the rents and vacancy rates in your local area by conducting a survey of the rental market. After all, your real estate investment wholly depends on the amount of rent tenants are willing to pay to occupy your property. So watch carefully for vacancy and rental rate trends in nearby neighborhoods.

Should you discover low vacancy levels surrounding the property, it might indicate a shortage of units and could be sign of an impending upswing in rents. This would mean that the rental property has the potential to add value to your investment and could be a smart real estate investing choice.

On the other hand, if your survey reveals an abundance of vacancies surrounding the rental, it could be an indication that tenants will be scarce and that you may have to resort to lower rents in desperation to attract tenants from your competition. This, of course, would add a huge element of risk to profitability and might not be your best real estate investing choice.

Look for Upgrade Opportunities

Thirdly, pay close attention to whether the rental property offers you an opportunity to contribute to profit with upgrades that could result in higher rents. Money is routinely made by real estate investors, for instance, when investment properties are in need of repair and have lower rents.

In this case, consider both the neighborhood and the remodeling costs jointly when making your investment decision.

If the real estate is located in a good neighborhood (or perhaps one turning around for the better) and remodeling costs could be offset with a positive impact on vacancy or rents, then purchasing a “fixer” rental property can provide you with a profitable investment opportunity and smart real estate investing choice.

Validate the Numbers

Finally, be sure to validate all the numbers regarding the property’s financial performance by conducting your own real estate analysis. It is never wise for any real estate investor simply to accept the cash flow, rate of return, and profitability projections presented by owners or agents who are trying to sell rental property.

This is not difficult with real estate investment software. So consider making the investment in a software solution that creates a real estate analysis for you to validate the numbers on rental property to determine its profitability. It just makes good real estate investing sense for you to cover all the bases.

About the Author

James Kobzeff is a real estate professional and the owner/developer of ProAPOD - leading real estate investment software solutions since 2000. Create cash flow, rates of return, and profitability analysis on rental property at your fingertips in minutes! Learn more at www.proapod.com

ProAPOD also provides an online real estate calculator that enables you to learn dozens of real estate definitions and formulas as you calculate. You save 64%. Learn more at real estate calculator

Comments

    0 of 8192 characters used
    Post Comment

    • esantiago340 profile image

      esantiago340 

      7 years ago from INDIANAPOLIS

      Great Info especially with checking on the area rents,vacancies ect I check with My Property Mgt as well as my Contractor when i'm doing my DD i also go by at nite an check the area.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)