Guide to Choosing Rental Property

Choosing rental property is a big financial decision that has to be made with care. Read on as we reveal for the best methods for selecting rental property.


Previous Page: Choosing Rental Property - Investment Goals and Tenant Supply


Comparing Prices of Similar Rental Properties

To have a good idea of a property's fair market price, you will need to compare the seller's asking price vs the selling price of similar properties.

Definition of "similar properties": Rental properties of the same purpose (residential, commercial, industrial), similar type (single family home, town house, duplex etc.) and within the same neighborhood.

Since property prices fluctuate, try to get hold of recent prices. When choosing rental property, pay close attention to the prices of similar properties sold within the last 3 months. Online classified sites are great resources for such information - Craigslist.org, eBayClassifieds and Backpage are three of the most popular sites for property listings.

What if property sales are slower in your area (e.g. small towns and suburbia) and you don't have enough data to select rental property? Then you can try extending your search further back to property sales up to 6 months ago.

Rental properties that are in escrow can also be a valuable source of information when you are comparing and choosing the right rental property.

When a property is in escrow, it means that the buyer and seller have agreed to the real estate deal provided that certain conditions are met. For example, the buyer may require the rental property to pass home inspections while the seller wants to make sure that his buyer is able to get his hands on a housing loan.

Is the Property Value Likely to Increase Soon?

While most landlords are more concerned with a property's long term rental income, the potential for property value appreciation is another big factor to consider.

When the price of a rental property rises, you can pocket the profits in two ways: You can either sell the rental property or go for a cash out refinancing. Also, property values and asking rents go hand in hand - When the value of a property increases, you can expect it to fetch higher rents as well.

There are two major factors that affects the prices of rental properties - Property market cycles and localized demand for housing in the property's neighborhood.

While it's impossible to predict the exact movements of the property market when you select rental property, it's much easier to identify which stage of the cycle of it is in.

Ideally you will want to enter the property market at two points - Near the end of a housing downturn where prices have almost bottomed up) or near the beginning of  a housing boom (where property values are poised to increase for the long run.

And it goes without saying that the absolute worst time to buy properties would be during a property bubble. Knowing how to identify a property bubble is essential when choosing a good rental property. Classic signs of a property bubble include: record prices (despite low or no growth in real demand), buying crazes amid multiple property launches and easy credit.

Watch out for any large scale developments or warning signals in a property's neighborhood. If a major shopping mall or public railway transport are positive growth signs. Falling population and shrinking work forces are definite red lights when choosing rental property.

Buying Rental Property