Criteria for Finding a Good Rental Property

Right now I own one rental property and assuming house prices remain stable in the next few years, I am probably going to consider buying another one. I have read a few books on rentals and how to separate the good, bad and ugly.

Related: Lessons from a First-Time Landlord

Here are some basic criteria I’ve learnt when evaluating the potential on a rental property:

Single Family Housing

I read an article last year that stated approximately 75% of Canadians want to live in a single family detached home. It’s no wonder when house prices go up, single family housing leads the way. A detached house has a wider market and therefore higher demand.

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Although the condo has gone up recently in value, it hasn’t appreciated nearly as much as our current home (a single detached house). I’m hoping it will increase in value headed into next year but from what I’ve read condos don’t appreciate nearly as much as single detached houses.

Cash Flow

This one is simple – the property must be cash flow positive from day one. This basically means the money coming in (rental income) must be higher than the expenses (mortgage payment, taxes, insurance).

Related: How Taxes Work When Renting Out Your Home

A good way to evaluate the rents in a specific area is to look on Kijiji or Rentfaster and do an area-specific search. I would definitely do this to determine what a realistic monthly rent would be prior to buying.

I think it’s also important to be realistic with monthly rental income. Sure, you can aim to get top dollar for a property but it may also sit vacant while you try to rent it for such a high amount.

Location

This one is very obvious and should be at the top of every list when looking at buying a rental property.

When buying a single family home as a rental property, it is important to think about who would want to rent the house and what their life would look like. Do they need to be near transit to commute to work? Do they have kids and are there good schools nearby? What are the demographics of the community? Will they have pets and if so, are there parks nearby?

Proximity to parks (for recreation/pets), schools (for children), shopping, transit and perhaps medical facilities are all important factors to consider.

Related: Why I Will Never Own a Vacation Property

In my case, I made sure the condo was located near rapid transit so that it would appeal to people who didn’t want to rely so much on their vehicle for their commute.

Commute Times

This one is related to location. According to seasoned real estate investors, commute is no longer measured in distance – it’s measured in time.

I think it’s important to put yourself in the shoes of a potential renter. Where will they work and how will they get there? Personally, my condo is located less than 5 minutes walking distance to a rapid transit line that goes directly downtown.

Since a large number of young professionals in my city work downtown, a simple and quick commute adds value to their lives by shaving minutes off their daily commute. A bonus is that they don’t have to worry other headaches that come with a vehicle if they use rapid transit.

Conclusion: I’m far from a real estate investing expert, but I think the main criteria for buying a rental property are fairly straight forward. In the future when I am able to consider buying another rental, I’ll definitely look at a single family home with a good location and quick access to downtown.

Do you own a rental property? If so, what criteria did you use to purchase?

Related: Real Estate Investing Without Becoming a Landlord

8 Responses to Criteria for Finding a Good Rental Property

  1. Alicia says:

    These are great tips. You know my story – I lived somewhere, couldn’t free up the property when we moved, and voila… rental property. We lucked out in that it is cash flow positive. Well, kinda. Depends how you look at it. It is if you don’t pay income tax on it. Otherwise, it’s a break-even point. But at least we have the equity in it.

    I don’t especially like being a landlord, and I haven’t had to do much of anything in that role. I can’t imagine what it would be like if it was a tenant that required a more hands-on approach.

    • Dan says:

      That situation sounds similar to mine. I became a landlord by default when I moved from the apartment into the house. If you’re hesitant about being a landlord you could consider a property mgt company in the future

  2. We own two single-family rental homes. We selected them based on location and the fact that they were in good shape. I think we made a good investment, but only time will tell. They will both be paid off in around 12 years and then we will really start raking in some cash!

    • Dan says:

      That is great, congrats! You’ll really start to see some cash flows come in once they’re paid off. I’m quite a ways from that point now but hopefully in the next 15 years

  3. Tawcan says:

    We don’t own any rental properties. The only real estate investments we have are from REITs.

    The idea of being a landlord isn’t very appealing to me. If I were to purchase a rental property, I’d use a property management company.

    • Dan says:

      Being a landlord definitely isn’t for anyone. My rental experience has been positive so far but I do know all it takes is one bad tenant to change that

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