One of the various ways you can build wealth through real estate is to invest in rental properties. Whether for short-term or long-term rental, rental property investments can be a lucrative venture that could provide a steady stream of passive income that leads to long-term wealth accumulation.
But finding the right rental property to invest in requires a decent amount of research and analysis on your part. This article will try and help you explore different strategies that could help you locate profitable rental properties to maximize your investment returns.
Please note, however, that the tips provided in this article should only serve as a guide for informational purposes and should not be used as an official investment advice.
How to Find Rental Properties for Investment?
Here are some steps we listed down for the would-be real estate investor who is looking to dip his toes into rental properties. If you are a new real estate investor who is planning to start a portfolio of real estate investment properties, this list could be helpful for you.
1. Know your investment criteria
Before anything else, you need to buckle down and get serious about defining your investment criteria. Knowing your investment criteria will help you quickly assess acquisition opportunities, streamline your search to make it more efficient, and help you move faster by focusing only on the properties that meet your criteria and align with your investment goals.
The most savvy buyers will usually have two levels of investment criteria: the first contains parameters that the buyer discloses publicly to intermediaries to get the word out so they know exactly what the buyer is looking for. This could be your budget, your preferred location, the type of property (single-family, multi-family), and other basic information.
The 2nd set of criteria are parameters that the buyer keeps to himself for internal review to determine whether or not he should push through with the purchase. This could include further analysis and deeper dive into the property such as: your preferred type of neighborhood and the tenant market it attracts, future developments, and specific goals you set that would be based on your individual investment goals.
2. Make use of online resources
There are various online resources that can help you in your search for rental properties. This includes real estate websites like Redfin, Zillow, Realtor.com, and HAR.com which provide comprehensive property listings with detailed information about the properties.
Other online platforms like Mashvisor and Roofstock specialize in investment properties and can give you data-driven analytics and insights that will help you in your rental investment property search.
Aside from these, you may also make use of social media and online forums. There are various online groups you can explore which are dedicated solely to the areas you are interested to invest in. Join those relevant groups whether in Facebook or LinkedIn, engage in discussions, and network with experienced investors who may have leads on potential investment properties or can provide advice on the local market.
3. Attend Real Estate Networking Events
Connect with fellow investors, real estate professionals, and potential property sellers in real estate networking events. Longleaf Lending regularly joins these events in Houston and we send invites via our mailing list. To be updated of our schedules, please subscribe to our newsletter and you will receive an invite in every networking event we are present in.
Not only will real estate events provide an excellent opportunity for you to expand your network, you will also be able to gain insights into local market trends, glean some insider industry tips that will hardly be available elsewhere, and even help you potentially find off-market deals that aren’t advertised at all.
4. Establish Relationships with Local Real Estate Agents
With their invaluable market knowledge and exclusive access to listings, local real estate agents can be a great help in finding suitable properties for rental investment. Local real estate agents can also provide you with insights on property values, rental demand, market information, and investment opportunities.
Build a relationship with a reliable real estate agent who clearly understands your investment goals and one who works in the target area where you intend to invest.
5. Check out Foreclosures and Auctions
Foreclosed properties can offer great opportunities for rental property investment. As part of your search, try to explore foreclosures and auctions. We have previously written an article about How to Buy Foreclosed Properties in Texas. Do check it out as it may offer you some additional insights.
6. Consider Off-Market Deals
Not all rental properties are listed publicly. Off-market deals, often referred to as pocket listings, can be a hidden gem for investors. Establish connections with property owners, property management companies, and local wholesalers who may have insider information on off-market properties. Direct mail campaigns, local advertisements, and word-of-mouth can also help uncover these hidden opportunities.
We also have a separate article about How to Find Off-Market Properties in Texas. You may also check it out for additional information.
What should you look for in a rental property for investment?
Before you craft your investment criteria, you should already have enough information about what factors you need to consider in a rental property. Here are some additional tips to help you.
1. The neighborhood and location
One of the biggest factors that will affect the income-generating capabilities of your real estate investment is the location and the neighborhood it is in. Not only do different locations have different property taxes (some have higher than others), the type of neighborhood will also dictate the type of tenants you will attract.
What is the category of the neighborhood: is it predominantly occupied by homeowners, renters, or a balance between the two? What is the crime rate? What industries are nearby? What is the average rent price in the area? Are there nearby schools, parks, and other recreational places?
Asking yourself the above questions would allow you to get into the minds of your prospect tenants, putting yourself in their shoes and allowing for better planning and marketing of your rental property.
2. Local rental demand
Brush up on market knowledge before anything else. Study the market by doing a thorough online research as well as talk to professionals about the current state of the rental market so you would have a keen awareness about the local rental demand.
3. Purchase the property at 10-20% below market price
By being conscious of the different ways to spot an investment opportunity and moving fast to close quickly, you can buy below market for a faster return on investment. If you need an exit strategy, that 10-20% can also provide you with a way out to move the property quicker.
4. The condition of the house
Be realistic about the time and money required to fix the property to get it into a rentable state. For this, you need to get your estimates and your numbers correct. Calculate the length of time your property would be vacant to get the renovations completed, as well as a thorough computation of the cost of repairs needed. Also factor in unexpected costs.
5. Mind the 1% rule
While different investors have different approaches and target returns, it is safe to say that the 1% rule is a good rule of thumb. Your property should bring in an income of 1% of its purchase price. So if you purchase the property for $100,000, the rent should be at least $1,000 a month.
Finding the right rental property for investment requires a combination of thorough research, utilizing various resources, and networking with industry professionals. By defining your investment criteria, leveraging online tools, engaging local experts, attending networking events, and exploring different avenues, you can increase your chances of discovering profitable rental properties. Remember, due diligence and careful analysis are essential to ensure you make sound investment decisions. With persistence and the right approach, you can build a successful rental property portfolio.
Whether or not you have already found a rental property that you are keen to invest in, it is important to line up your financing in advance. Before you can make any big moves in your property search, you need to have your financing ready so you can quickly close in as little time as possible. At Longleaf Lending, when you apply for pre-approval, we can provide you with a Proof of Funds to help you strengthen your offer.
Learn more about Rental Loans here and why rental loans are the better way to finance your rental property or you may visit our Rental Loans page to learn about our offer.