If you’re in the market for properties that can net you a lot of income, you better roll up your sleeves and do a lot of digging in terms of research. Take note that not all properties are guaranteed to give you good returns. To be able to make a profit as an investor, it’s important to identify which of these properties will make you the most money. Here’s our top list for the must-have qualities of the best income properties.

LOCATION

Location, location, location is probably something that you’ve heard time and time again. Location is a crucial factor since it determines the profitability of a property, especially if you’re converting it into a rental. Ideal income properties are located in top locations. With that being said, avoid purchasing a property in a location that you are NOT familiar with. How do you know if it’s in the best location?

A market analysis can be done to find a high-performing housing market. Economic situations, crime levels, availability of public transport, schools, hospitals, shopping centers, and similar amenities are just some of the qualities that you should be looking into. If you manage to find a location with the complete package, chances are there are a lot of similar income properties in the area. Such a location where the competition is quite high due to many rentals may not be ideal for investment. On the other hand, if it has fewer rentals, you might be experiencing lower vacancy rates and allow you to demand higher rents. Consider these qualities as they will greatly influence the performance of your investment ventures.

POSITIVE CASH FLOW

How would you know if the property is able to generate positive cash flow? In a rental perspective, this means that your rental expenses are lower than your rental income. To put it simply, the best income properties make more money on a monthly basis than what they actually cost. To make sure of this, you need to assess the expenses of the property and deduct them from the expected income. By doing so, you essentially avoid any unexpected expenses that would not only reduce your overall income but also lead to negative cash flow.

An investment property analysis is done to effectively determine a positive cash flow. This is basically finding out what goes in and out of the pockets in relation to running your income property.

GOOD RETURN ON INVESTMENT (ROI)

One common misconception is that the best income properties are the more luxurious ones. In fact, those that are generally small, simple, and undemanding such as single-family or multi-family homes have the greatest potential of making the best real estate investment. To put this into perspective, a luxurious property may demand higher rent, but the same can be said when it comes to its operating costs as well. This means that they typically generate a lower return on investment due to very high operating expenses.

What are the main qualities that you should look for when it comes to the ROI? That would be the cap rate and cash on cash return. The cap rate is determined by dividing the property’s net operating income by the current market value. The cash on cash return, on the other hand, is a rate of return that determines the cash income earned on the cash invested in the property. This measures the annual return you make in relation to the amount of mortgage paid during the same year.

MINIMUM REPAIRS

Who doesn’t want to purchase a property that requires little to no work done? The condition of the property is a major factor when buying an income-producing property. It would be in your best interest to go for one that needs modest repairs or can be rented out right away. Whenever you plan to make any renovations, make sure that the time, effort, and cost of doing so would pay off in the end. As long as it’s done right, any renovations can potentially increase your returns.

If you have experience in large-scale improvements or you can hire someone to do the job for you at a fair price, you might be looking for properties that are good fixer-uppers. These properties are able to give you a high potential for capital gains. However, if you’re new to real estate investing, tread lightly. You might be taking on a bigger challenge than you can actually handle. That’s why the best income-producing property would be one that needs modest repairs.

As you can see, buying a home for personal use is entirely different from buying an income-producing property. This requires a lot of research, evaluation, and grinding numbers among others. It may be hard enough for first-time buyers and investors, but it shouldn’t always be that way.

CTTO Article Source: www.biggerpockets.com