By Mike Baird
While house flipping can be one of the most lucrative and fulfilling career choices out there, there’s something to be said for fix-and-hold properties, too. With a good rental, you’ll have steady income on the property over the long term. That income can help you buy more flip properties, and it can help you diversify your investment portfolio, too. Of course, if you want to make a profit on your rental properties, you have to know how to pick them.
When Possible, Say No to HOAs
Neighborhoods that have homeowners’ associations usually have a lot of rules about the appearance of their properties. You’ll have to worry about what kind of sod you use for your lawn, how much and what kind of landscaping you can do, and more. Plus, while you’ll have a property manager taking care of the day-to-day details of your investment, you don’t want to incur a bunch of extra costs because your tenants accidentally break HOA rules.
I’m not saying that you can’t find a good investment in a neighborhood with an HOA, but it’s usually not as profitable, especially when we’re talking about fixing and holding a property.
Few Vacancies or Properties for Rent in the Area
Look at the neighborhood and check out how many vacant houses there are. If you see a large number of vacancies and homes for sale that aren’t moving, you’re looking at a neighborhood in decline. People are moving out, so it’s going to be tough to get people to move in, especially if you want to charge a decent rental rate.
Likewise, if you see a lot of “For Rent” signs up around the neighborhood, you know that you’ll have a lot of competition and that there’s not a very high demand for rental properties in the area. Look for a neighborhood with as few vacancies as possible and little rental competition.
A Great Job Market Brings Tenants
How close is the property you’re looking at to businesses and commercial districts in the area? If you’re near a city center or another area with a great job market, you’re not likely to have a vacant property for long. Choose properties that have easy access to highways without being right on an exit, and go for properties that are within 10–20 minutes of the districts where residents work. If you’re in an area that’s convenient to work, either by car or public transit, you’ll have a better chance of getting the rental rates you want.
Think About What Families Want
If you’re renting a house, you’re likely to get families interested in moving in, so look at the local school district and the kinds of amenities that families look for. Why focus on families? In general, families with professional parents and kids of almost any age make great tenants. Parents want a nice place to live that’s close to work where they can raise their kids and put them in good schools. In return, they usually pay rent on time, take good care of the house, and let you or your property manager know when there are any issues.
With these four tips, you’ll have a good idea of the best neighborhoods in your area for fix-and-hold properties. You can determine if a property is a good deal, if it would be better as a fix-and-flip house, or if you’d be better off walking away instead. Take a look at the neighborhoods near you and see which ones will make great rental markets for you.