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Home » Property Management » 7 Factors That Determine a Rental Property’s Profitability

As you shop around for an investment property, it’s important to understand the factors that can influence its return on investment (ROI). While there are some things you can do to force-appreciate your property or make it more attractive to tenants, there are also things you can’t control. Below, we’ve listed a few factors to carefully take into consideration, as they can make or break your investment.

Factors That Determine Profitability of Rental Property

Let’s explore the critical elements that determine a rental property’s profitability—from location and market trends to property condition and management strategies. By mastering these factors, you can make informed investment decisions and maximize your returns in the real estate market.

#1 Location

As they always say, “Location, location, location!”. Picking the ideal location for your investment property is the most important factor to consider as it impacts the rental rate, appreciation, and more. This is due to the fact that location is the main factor that draws tenants toward a particular property. For instance, if your rental is near their workplace, they’re more likely to rent with you than one that’s 30 minutes away, even if their other option is less expensive.

To make sure you secure a good, long-term investment, look for properties that are close to amenities.  For instance, an apartment near the city’s central business district would be a good fit for professionals in their 20s to 40s, while a single-family home in a good school district would be best suited for families with children.

#2 Rental Demand

You’ll have to consult a rental management company in Florida to determine whether or not there’s a rental demand in the area where you plan to invest. Even if a particular property seems like it’s in an attractive location, that doesn’t mean that people will actually want to rent when they live there. Note that in certain locations, it’s more reasonable to own or build than to rent.

One metric that can determine whether or not there’s a rental demand is the price-to-rent ratio. It compares the current rental rate to the cost of similar properties for sale. If the price-to-rent ratio reveals that it’s more economical to rent, then it would be less risky to invest in that market.

#3 Local Economy

Local Economy

It’s always a good idea to go for properties in areas that are increasing in population, and growing in terms of median income. An economy that’s performing well is a sign that more people have moved or are moving to that area. In cities with plenty of employment opportunities, investors can see an increase in rent. On the contrary, in cities where the population is consistently decreasing, the rental rate decreases, as well.

A wise real estate investor would stay up-to-date on development plans, and be on the lookout for markets where big businesses plan to set up base. However, don’t limit yourself to businesses–if you find out that a university will be built in that area, it may be a worthwhile investment, as well. Renting and dealing with student tenants is a whole new ballgame, but it is manageable and can broaden your tenant pool.

Do note that not all developments can increase your rental rate or cause your property to appreciate. For example, a home that’s located within 300 meters of a prison is valued lower, while a property that’s near a cemetery tends to take longer to rent out. It would be in your best interest to find out if the local government plans to build these types of properties in the future.

When you partner with a rental management company like Luxury Property Care, you’ll regularly get news on developments that may impact your prospective property. Our team stays up-to-date on any new construction, local laws, trends, etc. so we can provide you with sound Real Estate investment advice when you need it.

#4 Geographical Location

When purchasing an investment property, avoid areas where disasters such as tornadoes and floods are likely to occur. You’ll want to protect your property from any form of damage–bear in mind that too many repairs/replacements over a short period of time are bad news for your bottom line. Besides, your tenants will want to rent a property where they know they’ll be safe. To attract tenants and boost your property’s profitability, be sure to rent in a geographically stable region.

If you’re worried that your potential investment in Florida is in a flood-prone area (as most of them are), there are many ways to deal with this reality. For instance, you could prepare an emergency action plan or reinforce your property with flood-proof materials.

#5 Percentage of Renters

Examine the ratio of renters to homeowners–this will tell you whether or not rental properties in that area are currently performing well, and if you can successfully rent out yours. In Miami, for example, 69.6 percent of properties are renter-occupied, while only 30.4 percent are owner-occupied. This data indicates that Miami has a solid rental market and that you’ll likely be able to turn a profit, as well as maintain a good rental property ROI in the long term.

You can use websites such as World Population Review, but for more reliable data, it’s best to consult a property management company in Florida.

#6 Supply of Rental Properties

The concept of supply and demand also dominates the real estate industry. It isn’t good news when an area has too many listings at the same time. Not only does this mean that there’s a low demand for rent, but it also means you’ll have to lower your rent to be able to compete. Ideally, you should go for areas where listings don’t stay on the MLS too long. A rental management company can look into the average time it takes to rent out a property in a particular area, so you can make a sound decision.

#7 Property Taxes

Property Taxes

One of the main contributors to your property’s profitability is the area’s tax rate. While Florida does not collect a state income tax, it does collect property tax, which can reduce the income from your rental property.

This, however, isn’t to say you shouldn’t invest in these areas due to the tax rate. You can raise your rent or deduct rental-related expenses to offset the costs of your property taxes.

Seek Investment Advice From a Rental Management Company

Whether you’re planning to invest and manage properties in Miramar or Downtown Miami, you can count on the experts at Luxury Property Care. We will provide you with investment advice and full property management assistance. Not only have we connected so many successful investors to the best investments, but we’re also investors ourselves. We know the South Florida market better than anyone, so when you work with us, you can benefit from our wealth of knowledge and maximize your ROI.

Contact us at (561) 944 – 2992 or complete our contact form, and we’ll help you find (and manage) the perfect investment property.

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