Purchasing rental property as an investment can be an effective alternative to the stock market. Actively owning rental property (being a landlord), or passively owning such property (hiring a management company), are two ways to invest in rental property.

If being a landlord (property owner) doesn’t fit your lifestyle, you may want to hire a management company to actively manage and operate the property. If you are a “hands-on” type of person, then being a landlord is generally the less expensive way to own rentals.

Whether you handle the management yourself or hire a company, the buying of rental property can be a great way to build wealth.

Before Buying

Before investing in any rental property (but especially for your first rental), make an exhaustive search of all available rental properties. If you are going to be the landlord, then it is a good idea to purchase property relatively close to where you live. Alternately, if you are hiring a management company, the proximity of the property to your home is not so critical.

Top Ten Features

The key components when looking for a great rental property investment are:

-- Crime

-- History

-- Insurance

-- Jobs

-- Location

-- Permits, Zoning, and Future Development

-- Property Taxes

-- Rental Amounts

-- Rental Types

-- Schools

 1   Crime

The chamber of commerce, the police department, and the public library are good resources to find out if crime is a problem in your prospective rental area. Though the property may look desirable, the surrounding environment may not be encouraging for a good investment. Find out the rates for serious and minor crimes in the area over the past year. Research how crime problems have increased or decreased over the past several years to better assess any potential for long-term legal situations.

 2   History

Make sure you are informed of the history of the existing property from the owner’s records. If the property is new, familiarize yourself with the background of the developer.

 3   Insurance

Various insurances may be necessary for the property (property, liability, etc.). Be especially well informed as to what is common in the area with respect to natural disasters. For example, identify if the area is prone to tornadoes, flooding, hurricanes, earthquakes, etc.

 4   Jobs

A higher rate of employment in an area generally relates to an increased ability for tenants to pay rents on time, and on a regular basis. The website of the Bureau of Labor Statistics (http://www.bls.gov/) or the local library are good resources for discovering employment rates.

 5   Location

The location of the rental property is likely to be the most important feature for ensuring a great rental investment. The neighborhood will influence the types of tenants interested in renting as well as how often the property is “turned over” (its occupancy/vacancy rates and its rental trends).

The quality of the location is important, so consider carefully the available conveniences and services, such as the number of parks, movie theaters, grocery stores, and other attractions that people prefer to have close to their residences.

 6   Permits, Zoning, and Future Development

The local city’s municipal planning department will have information on the number and types of building permits issued in any area of interest. Be especially aware of the zoning for these permits. Too much commercial or residential zoning could reduce the amount of green spaces present and could draw more competition to your investment. Not enough zoning, however, could mean a poor growth area.

 7   Property Taxes

Property taxes are not uniform from one location to another. If you discover that property taxes are higher than average, don’t be startled. If the neighborhood is a desirable location, you may recoup the loss from the property taxes through superior gains on the property. In any case, know how much the property taxes are before buying.

 8   Rental Amounts

Research the average rent for properties in the immediate and surrounding areas. Also, determine the minimum rental amount to charge that will cover your mortgage payment, taxes, and other expenses. Estimates of future trends can be located at the local chamber of commerce and other such organizations.

 9   Rental Types

There are different types of rental property each with their own distinct advantages and disadvantages. Single-family homes are usually a good investment because they are popular with a large cross-section of people and generally appreciate faster than other investments. However, single-family homes are usually larger than an apartment and, therefore, may require additional expenses.

Many external expenses of condominiums are taken over by the condominium association, although a fee is paid for such service. Find out about the trade-offs of each type of rental property before you buy.

 10   Schools

High quality schools are generally a strong indicator for a good investment, while a school system that has a poor reputation will likely have the opposite affect.

Additional Resources

-- MSN Money: http://articles.moneycentral.msn.com/Investing/RealEstate/HowToFindGoodInvestmentProperty.aspx

-- DoItYourself.com: http://www.doityourself.com/stry/pitfallsandprofits

-- GoodMortgage.com: http://www.goodmortgage.com/calc_investment_property.htm

-- CompleteLandlord.com: http://www.completelandlord.com/browsetips.aspx?id=8 

-- Ezine Articles: http://ezinearticles.com/?Rental-Property-Investment---A-Quick-Introduction&id=313990