Real estate agent using digital tablet

As you examine properties, keep in mind that you're more likely to see steady profit with longer-term rentals that require little maintenance. (Getty Images)

Real estate investments can be challenging, but also very rewarding. Passive income, stability, return on investment, tax benefits, appreciation – the financial advantages of hold-to-rent real estate can’t be denied. Understanding what type of investment property you’re looking for and who your target renters will be is essential in delivering a desirable product to the rental market.

Focus on these five critical criteria when shopping for an investment property to ensure your money works for you.

1. Desirable location. Location, location, location. In real estate, that timeless phrase holds true. Your property’s location will ultimately determine the overall success of your investment, affecting the amount of rent you can charge, the types of renters applying and your vacancy rate. Offering a rental surrounded by attractive amenities, shopping, convenient traffic routes, parks, entertainment and more will draw a steady stream of prospective tenants.

Before purchasing, research the local school ratings, job market, shifts in the rental market, design trends, local crime rates and any city codes that could potentially affect your property. The more desirable your location, the lower the risk becomes.

[Read: The 5 Biggest Mistakes Real Estate Investors Make and How to Avoid Them.]

2. The numbers. Underwriting is a critical element of deciding which investment property to purchase. Allowing emotion to drive your decision making when searching is a detrimental mistake. Separate yourself from your likes and dislikes and focus on what the market is demanding in a rental. Positive cash flow is the end goal, as this is a source of income for you, not the home you’re planning to live in.

Constructing a financial plan and budget prior to purchasing is key as you’ll be covering not only the mortgage, but also taxes, maintenance, design costs, improvements and unforeseen complications. Accounting for overhead and average vacancy rates is something to be factored in when underwriting a potential purchase. Calculating what your true profit will be against your initial investment is what matters.

3. Low overhead. One key way to ensure you maximize your return is to choose an investment property that won’t require much maintenance and overhead. Commonly, longer-term rentals are lower maintenance than, say, vacation or student rentals. Steady long-term tenants will yield the best returns on your investment.

Often the less flashy, more median-priced rentals yield the steadiest returns year-over-year as compared to high-end, luxury rentals that require more maintenance. Also, consider whether you’ll be hiring a property manager or if you’ll be doing any maintenance yourself. Proximity to your income property will be important if you’re handling this aspect on your own.

[Read: Opportunity Knocks: 6 Indicators to Find Top Real Estate Investment Markets.]

4. Appreciation. The smartest investment is one that appreciates in value. As an investor, appreciation is two-fold: When you buy the property and when you sell it. The best approach is to find a property where only a few cosmetic updates will allow you to charge more per month and won’t cost you a lot. You will also save on your initial investment rather than hiring contractors to do the work, like a fresh coat of paint.

Generally, most land is going to appreciate a little over time, but you want an investment that increases in value more than the rest. Try and find an up-and-coming or already desirable area that has plans for future development. On the flipside, a neighborhood that’s safe and quiet for families could be just as desirable.

Consider the specific location of the property within its community. Is it on a busy thoroughfare or on a private cul de sac? Close to great local schools or in a high-density urban environment? These are all things that will help you forecast your property’s appreciation over time.

5. Practical wins the race. Of course you want your income property to be aesthetically appealing, but there's a smart way to approach this aspect. A long-term rental is a strong, stable investment, but only when not trying to reinvent the wheel. Low risk equals “normal.” You don’t want to limit your audience of potential tenants by purchasing a highly specific property such as a historical Tudor-style home with unique interior features. You should be aiming for bright, open, clean and tasteful.

The more specific the rental is, the higher the risk your investment becomes. A practical rental property will ensure a steady flow of tenants, like a two-bedroom traditional house with 2 1/2 baths in good shape, close to shopping centers, local schools, nearby parks and on a quiet street. Or a more modern one-bed, one-bath in downtown with open layout and building amenities such as a gym and pool for a younger crowd. Educate yourself on the market where you’ll be investing, and choose a property that meets the demand and is appealing to a wide audience.

[See: 8 Home-Selling Buzzwords That Annoy Consumers.]

When investing in long-term rental real estate, the party line is simple: Stick to the fundamentals. While you may not be offering the most architecturally exciting property on the beach, you will achieve steady returns and a worthwhile return on your investment.


The 25 Most Desirable Places to Live in the U.S. in 2017


The 25 Most Desirable Places to Live in the U.S. in 2017

If given the choice, where would you live?

Hawaii, Oahu, Honolulu, Waikiki Beach

(Getty Images)

Among the factors contributing to our Best Places to Live rankings – including affordability, job market and population growth due to net migration – U.S. News surveys people throughout the country to determine where residents would want to live if given the choice. According to the Google Consumer Survey results, here are the 25 most desired places to live out of the 100 largest metro areas in the country.

25. San Jose, California

25. San Jose, California

Mixed-use european style buildings of the upscale Santa Row shopping district in San Jose, California.

(Getty Images)

Overall Rank in 2017: 3
Metro Population: 1,925,706
Median Home Price: $829,792
Median Annual Salary: $78,620

The "Capital of Silicon Valley" is the perfect place to live if you want to be at the heart of innovation. San Jose is also located close to the Santa Cruz Mountains and the San Francisco Bay Area, giving residents easy access to ample outdoor activities.

24. Salt Lake City

24. Salt Lake City

Salt Lake City downtown shot from the Meridian Monument looking to the Main Street

(Getty Images)

Overall Rank in 2017: 10
Metro Population: 2,325,531
Median Home Price: $247,052
Median Annual Salary: $44,752

Utah’s capital is also the state’s most populous city, and its location near the Wasatch Mountain Range makes it a perfect hometown for residents who love the outdoors. Salt Lake City is close to several world-class ski resorts and a half-day's drive from each of Utah's "Mighty Five" national parks.

23. Las Vegas

23. Las Vegas

Clear winter sky above golf course homes and casino resort towers in Southern Nevada.

(Getty Images)

Overall Rank in 2017: 78
Metro Population: 2,035,572
Median Home Price: $208,839
Median Annual Salary: $42,070

Best known for its casinos and high-profile entertainment, Las Vegas is regarded as a city dedicated to the tourism industry – but survey results reveal many people would love to make their visit to Sin City permanent. Developing suburbs surrounding Las Vegas have helped fuel the area's growing population.

22. Lakeland, Florida

22. Lakeland, Florida

Downtown Lakeland, Florida, US

(Getty Images)

Overall Rank in 2017: 64
Metro Population: 626,676
Median Home Price: $148,000
Median Annual Salary: $39,030

Just about any spot in Florida gets high marks for desirability, and the abundant sunshine and proximity to the ocean make Lakeland the first of six Florida metro areas in our list of the 25 Most Desirable Places to Live in 2017.

21. Boston

21. Boston

Waterfront of Boston, Massachusetts. Composite stitched image.

(Getty Images)

Overall Rank in 2017: 8
Metro Population: 4,694,565
Median Home Price: $321,436
Median Annual Salary: $62,070

Known for its role in the American Revolution, globally recognized educational institutions and innovative medical establishments, Beantown takes the No. 21 spot. The extremely loyal fan base that supports the city’s professional sports teams – the Red Sox, Patriots, Bruins and Celtics – is a uniting force throughout the Boston area and beyond.

20. Virginia Beach, Virginia

20. Virginia Beach, Virginia

Virginia Beach is a resort city with miles of beaches and hundreds of hotels, motels, and restaurants along its oceanfront

(Getty Images)

Overall Rank in 2017: 69
Metro Population: 1,706,878
Median Home Price: $225,315
Median Annual Salary: $45,460

Another metro area known for its beach-based tourism, Virginia Beach comes in at No. 20. Located north of many other coastal cities on the list, Virginia Beach has a cost of living that's slightly higher than the national average.

19. Santa Rosa, California

19. Santa Rosa, California

Wine grapes in Sonoma County, California.

(Getty Images)

Overall Rank in 2017: 52
Metro Population: 495,078
Median Home Price: $499,513
Median Annual Salary: $50,540

Many people dream of living in the heart of California wine country. The Mediterranean climate coupled with valleys and rolling hills surrounding the city make Santa Rosa a coveted place to live and own a home, which is why the median home price for the metro area is just under $500,000.

18. Raleigh and Durham, North Carolina

18. Raleigh and Durham, North Carolina

Raleigh, North Carolina, USA downtown city skyline.

(Getty Images)

Overall Rank in 2017: 7
Metro Population: 1,750,865
Median Home Price: $219,466
Median Annual Salary: $51,150

Raleigh and Durham’s dedication to research and technology makes it another sought-after destination for individuals who want to be at the forefront of innovation. Plus, the area’s major universities – Duke University, the University of North Carolina–Chapel Hill and North Carolina State University – attract many residents seeking a college town atmosphere.

17. Tucson, Arizona

17. Tucson, Arizona

A mountain biker takes in the sunset in Tucson, Arizona.

(iStockPhoto)

Overall Rank in 2017: 62
Metro Population: 998,537
Median Home Price: $177,688
Median Annual Salary: $42,910

For those who prefer dry heat, this southern Arizona city – about 60 miles north of the Mexican border – is a popular choice. With mountains in the distance and a low cost of living, Tucson is a desertgoer’s dream.

16. Sarasota, Florida

16. Sarasota, Florida

Siesta Key beach at Sarasota, Florida, USA

(Getty Images)

Overall Rank in 2017: 21
Metro Population: 735,767
Median Home Price: $224,613
Median Annual Salary: $40,600

Sarasota is a particularly popular destination for retirees looking to relocate to a warmer climate. With a median age over 50, this Florida metro area maintains a solid tourism industry along with a fast-growing population.

15. Charlotte, North Carolina

15. Charlotte, North Carolina

Charlotte Skyline from Marshall Park

(Getty Images)

Overall Rank in 2017: 14
Metro Population: 2,338,792
Median Home Price: $189,508
Median Annual Salary: $48,370

The second North Carolina metro area on the list, Charlotte – the state's largest city – is also seeing rapid population growth. Although it's a southern metro area, Charlotte still experiences four seasons, but without many days or nights below freezing.

14. Tampa, Florida

14. Tampa, Florida

Skyline of Downtown Tampa, Florida, US

(Getty Images)

Overall Rank in 2017: 35
Metro Population: 2,888,458
Median Home Price: $170,495
Median Annual Salary: $44,510

A popular spring break destination, the Tampa Bay area offers relief to northern residents seeking sunshine and an escape from long winters. It’s no wonder many visitors wouldn’t mind making their stay in Tampa permanent.

13. Fort Myers, Florida

13. Fort Myers, Florida

Fort Myers, Florida

(Getty Images)

Overall Rank in 2017: 70
Metro Population: 663,675
Median Home Price: $198,700
Median Annual Salary: $39,950

Ranking No. 17 on 2016’s Most Desirable Places to Live list, Fort Myers jumps to No. 13 this year. Like many other Florida metro areas on the list, Fort Myers is a popular retirement destination as well as an attractive beach-lined vacation spot.

12. Nashville, Tennessee

12. Nashville, Tennessee

The sun is setting behind the Nashville Tennessee skyline

(Getty Images)

Overall Rank in 2017: 13
Metro Population: 1,761,848
Median Home Price: $200,590
Median Annual Salary: $44,700

The capital of Tennessee is also considered the place to go for a career in country music. Nashville is a dream hometown for many, and it's becoming a reality for many others, as the area has a rapidly growing population due to migration over the past five years.

11. Daytona Beach, Florida

11. Daytona Beach, Florida

Daytona Beach, Florida, US

(Getty Images)

Overall Rank in 2017: 82
Metro Population: 604,502
Median Home Price: $164,069
Median Annual Salary: $36,980

On the east coast of Florida, Daytona Beach regularly draws visitors seeking warm weather, ample beaches and the Daytona International Speedway. Given these attractions, it's no surprise many people are moving to the area.

10. Orlando, Florida

10. Orlando, Florida

Aerial view of Orlando, Florida

(Getty Images)

Overall Rank in 2017: 40
Metro Population: 2,277,816
Median Home Price: $187,948
Median Annual Salary: $41,460

The highest-ranking Florida metro area of six on this list, Orlando isn’t located on the coast but still draws many permanent residents and tourists. Well-known attractions such as Walt Disney World and Universal Orlando are a big part of the reason, and they also serve as major local employers.

9. Charleston, South Carolina

9. Charleston, South Carolina

Charleston, South Carolina, at the historic homes on The Battery.

(Getty Images)

Overall Rank in 2017: 27
Metro Population: 712,232
Median Home Price: $222,979
Median Annual Salary: $$43,560

With a warm climate and prime location on the South Carolina coast, Charleston is a dream destination for many U.S. residents. Charleston earns its highest marks in the Best Places to Live 2017 ranking for desirability, followed closely by its rapid growth through migration to the metro area.

8. San Francisco

8. San Francisco

Curved Lombard Street and gardens in San Francisco.

(Getty Images)

Overall Rank in 2017: 16
Metro Population: 4,528,894
Median Home Price: $700,875
Median Annual Salary: $66,900

A major West Coast tourist spot and one of the priciest places to live in the country, San Francisco is a top destination for many U.S. residents. The hilly streets and Victorian row houses captivate residents and tourists alike, and the city's reputation as a place where free spirits and tech innovators thrive is another draw.

7. New York City

7. New York City

Times Square in New York City, New York.

(Getty Images)

Overall Rank in 2017: 80
Metro Population: 20,919,933
Median Home Price: $384,202
Median Annual Salary: $60,108

Moving up from No. 11 last year, the largest metro area in the U.S. takes the No. 7 spot on this year's Most Desirable Places to Live list. A global hub for finance, fashion, entertainment and so much more, New York City is a widely recognized dream locale for many people, young and old.

6. Austin, Texas

6. Austin, Texas

Map of Texas with Austin skyline in background.

(Getty Images)

Overall Rank in 2017: 1
Metro Population: 1,889,094
Median Home Price: $262,182
Median Annual Salary: $49,560

Many people are acting on their wish to move to Austin to enjoy its rapidly expanding job market, warm climate and unique cultural vibe. With many tech companies opening offices here or even fully relocating from Silicon Valley, Austin is yet another place to live if you wish to be a part of the tech industry.

5. Seattle

5. Seattle

Beautiful Sunny Morning in Seattle With Mt Rainier

(Getty Images)

Overall Rank in 2017: 6
Metro Population: 3,614,361
Median Home Price: $359,693
Median Annual Salary: $59,060

Flipping the switch on sunny cities, Seattle takes the No. 5 spot despite its reputation for overcast weather. The nearby mountains and ocean make it easy to escape for outdoor excursions, and residents also enjoy the countless coffee shops the city is known for.

4. San Diego

4. San Diego

Skyscrapers of San Diego skyline with reflections and cloudscape.

(Getty Images)

Overall Rank in 2017: 22
Metro Population: 3,223,096
Median Home Price: $484,625
Median Annual Salary: $54,210

Yet another high-ranking warm-weather retreat, San Diego comes in at No. 4 for its sandy beaches, sunny weather and renowned attractions such as the San Diego Zoo and Balboa Park.

3. Denver

3. Denver

Aerial shot of Denver

(Getty Images)

Overall Rank in 2017: 2
Metro Population: 2,703,972
Median Home Price: $301,300
Median Annual Salary: $54,450

The Mile High City is a top destination for millennials in particular, who are attracted to Denver's flourishing job market as well as its proximity to the Rocky Mountains, where countless outdoor opportunities are just a short drive away. Denver ranks No. 2 in the overall Best Places to Live in 2017 list.

2. Colorado Springs, Colorado

2. Colorado Springs, Colorado

Garden of gods in Colorado Springs

(Getty Images)

Overall Rank in 2017: 11
Metro Population: 678,364
Median Home Price: $228,431
Median Annual Salary: $47,600

Located south of Denver and about four times smaller, Colorado Springs edges out its neighbor for the No. 2 spot on the Most Desirable Places to Live list. Colorado Springs residents also have easy access to the mountains and can take advantage of both hiking in the foothills and skiing at well-known resort towns in the Rockies, including Vail and Aspen.

1. Honolulu

1. Honolulu

Sunset in Honolulu

(Getty Images)

Overall Rank in 2017: 46
Metro Population: 984,178
Median Home Price: $511,600
Median Annual Salary: $49,320

With the number of coastal cities and warm-weather spots on the list, it’s no surprise Honolulu takes the No. 1 spot – for the second year in a row. Although cost of living is high for Honolulu residents, that doesn’t stop people from dreaming of a life in the Hawaiian Islands.


Tags: real estate, housing, housing market, home prices, investing, renting


Sally Forster Jones is recognized as one of the top real estate brokers in Southern California. Forster Jones is an expert in the luxury real estate market in Los Angeles and internationally. Her extensive knowledge ranges from residential sales, luxury and architecturally significant properties to new developments and commercial transactions.

She is currently Executive Director of Luxury Estates with Compass in Beverly Hills, California. Her team, SFJ Group, is comprised of agents and a full-service staff ranging across experienced marketing, listing, transaction, and operation experts.

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