Investing in residential real estate is a proven way to earn passive income and grow your wealth. It's no fluke that over 90% of U.S. millionaires have invested in real estate.
One of the best niches in this real estate market is rental property. With millions of U.S. households renting, there's a strong demand for rental homes.
However, this doesn't necessarily mean success is guaranteed. You can set up rental properties and struggle with low occupancy, a scenario that will drive you into major losses. This is where rental analysis comes in.
It's prudent to analyze every location you wish to invest in before deciding on whether or not to proceed.
Read on to learn about the benefits of doing a rental analysis.
1. Establish Rental Demand
Even with more people renting, the demand for rental homes isn't uniform across the country. Some locations have great demand and others are struggling.
Several factors can influence the rental demand in a given location, including demographics and zoning laws. If the vast majority of people in a location are seniors, for example, it's unlikely that there will be strong demand for rentals.
Conducting a rental analysis will help you to determine not just the current rental demand, but also for the near future. With this information, you can then decide whether setting up a rental property in that location is a smart idea.
2. Build a Tenant Profile
So, rental demand is great and you're ready to move on with your plans.
Not so fast!
In the rental property business, it's essential to know who your ideal tenant is. This is how you'll determine the right type of property to purchase and how to furnish or equip it.
Rental analysis will reveal the typical renter in that location. Generally, it'll either be Gen Zers, Millennials, Gen Xers, or even Boomers.
If most of the renters are Boomers, for example, you may not want to build a multi-story building, given the mobility limitations of the people who will be using it. Instead, you'll shift your focus to single-family houses.
3. Rental Prices
You cannot open a rental property and charge whatever rental price you'd like.
If you're charging way above the market rates, don't be surprised if no one wants to become your tenant. If you're charging below the market, you'll be selling yourself short.
Plus, in some locations, there are laws capping rental prices.
Doing a rental analysis is the best way to establish a fair market rent for your property, as well as get familiar with rent regulations in the area if any.
Rental Analysis Done By the Professionals
Your success as a rental property investor can depend on the quality of your rental analysis. Some investors do the analysis on their own, but that's not the right approach. There are experienced professionals you can hire to do the job.
At PMI Aspire, you will get a free rental analysis if you're eyeing the Denver, Colorado market. Our property management company deploys cutting-edge property technology to study the real estate market and manage rentals.
Contact us to get a first-hand look into our processes.