4 Key Factors for a Great Investment Property

While the rental market is always in flux (it’s strong right now), we are still seeing a competitive homebuyer’s market. This competitiveness can deter and force some homebuyers out of market, resulting in the need for rentals. As a long-time landlord, I’ve invested in a variety of different properties in Philadelphia throughout my investor career. Unlike New York City, Boston, and Washington D.C., Philadelphia did not see a mass exodus of their residents in 2020 due to the pandemic-induced shutdowns. Philadelphia is still considered to be a more affordable metropolitan area than most leading many from other cities to move here. When thinking about my next investment purchase, there are a few key considerations I recommended factoring into the decision-making process:

Location, Location, Location- Philadelphia for the most part has a constant influx of renters, resulting in shorter vacancies, making a city property a sound investment. When narrowing down your search with neighborhoods, keep in mind ease to public transportation, amenities, and local attractions. Renters love convenience, the more convenient the location the higher sought out it will be.
Property Type- There are many pro/cons to the different property types found in Philadelphia. A one unit single family home can be at times the easiest to self-maintain, multi-unit homes offer the potential to rent out more than one rental unit, and properties in condo or homeowner’s association offer low maintenance maintaining at a price. Dependent on your investment goals, each property type should be weighed into your purchase decision. I would however be very cautious on Condominiums as an investment piece. There are too many variables with the associations and maintenance (trust me I have had 2 of them!). However, at a very lucrative price point it still may be an option.
Price to Rent Ratio- A high price to rent ratio can indicate a lucrative real estate investment. The price-to-rent ratio is calculated by dividing the cost of a home by the average cost of annual rent in that same area. A score above 15 indicates that it’s more affordable to rent than to buy. Although, it is very important to recognize that extremely high ratios (25+) may mean properties are overvalued or part of a housing bubble
Return on Investment Ratio- An impressive return on investment for a rental property is typically above 10% but depending on the investor and their levels of risk and the overall strategy the common ranges vary anywhere from 5-10%. To calculate the ROI on an investment, you take the total return on the investment and subtract the original cost which will equally your net profit. Then divide that number by its original cost for your ROI percentage. Whether you purchase the property by cash or financed, this will further impact your ROI calculation. It is important to understand your budget and potential return/risk prior to purchasing an investment property.