Looking for a good investment? Experienced real estate investors know the tell-tell signs of a rental property that will provide the best possible return on their investment dollar for their short-term cash flow and long-term passive income.

So why not turn to the experts who follow a recipe for success? We’ve gathered the key ingredients that you need to know to determine if a rental property is a good investment.

Know the Market

Strong familiarity with the real estate market, future city plans that influence the property’s value in the area you’re interested in, and any economic developments that would add significant job growth. Plans to develop shopping, medical, business centers, parks, or schools are positive signs of anticipated expansion and indicate further demand for rentals nearby. Long-term tenants like families seek out rentals near the best schools, and while the monthly cash flow is a bit lower, turnover is much less frequent than with shorter-term rentals.

Right Neighborhood

Another thing to look for a rental property to help ensure that you’re making a sound investment is to find the right neighborhood. You, or a trusted representative, must go to the physical location and have a good look at the property, spending time outdoors to ensure no foul smells or disturbing noises are coming from any surrounding properties. Another essential factor to concern yourself with as a responsible landlord is the crime rate in the area.

No Major Repairs

One of the things it’s helpful to know about potential rental property investment is to avoid properties with significant problems, especially if you lack construction experience and are at the start of your investment business journey. While a fresh coat of paint and some new flooring or countertops can quickly improve a property, you need to ensure that the foundation beneath your feet is solid. Without a professional inspection, you should be ready to take on the financial risk of major structural repairs and have the time and extra funds available for rehabilitating a property.

Available Rentals Nearby

You should also know if the rental property is the vacancy rate in the area. If vacancy rates are high nearby, this is an indicator that there is little demand for rentals, and you should move on to another section of your market city.

Resale Value

Long-term value is a critical factor when you’re evaluating rental property because well-researched investments will provide you with a comfortable cash flow in your retirement. In addition, a history of solid home sale values and long-term rental income for the area, or hints that show a neighborhood is in the early stages of revitalization, demonstrate the investment will hold value. Finally, long-term value also comes into play when your investment strategy calls for you to cash in on your equity in the future and exit the investment.

Cash Flow Potential

The bottom line for investors in rental property is the potential cash flow. Experienced pros know the winning formulas and punch in the numbers before purchasing rental properties. If the gross income minus any mortgage payments and expenses don’t add up to positive cash flow, savvy investors do not buy the property, and it’s that simple.

CTTO Article Source: www.biggerpockets.com