Finding the Best Investment Property

Working on finding the best investment property but unsure of what the ideal type of property to invest in is? You are not alone.

This is a question I’m often asked by Northern Virginia investors and homeowners. While I can’t address the intangible reasons people may decide to invest in a rental property, I do know which types of homes offer the best promise of steady income without draining owners’ profits. And, bottom line, I see, year in and year out, which homes are the most desirable to tenants and easiest to maintain.

When it comes to sheer return on investment, there’s no question: The best investment a homeowner can make is in a townhouse. A townhouse represents a superior investment to condos or single family homes for three main reasons: optimal square footage for the money, a configuration that suits the needs of most tenants, and reduced maintenance.

Want to control costs? Start with the structure.

Let’s begin with the ideal investment property structure. With investment properties, simple and low-maintenance always trumps “big and fancy.” Especially when it comes to the exterior of the home. Unlike a single family home, a townhouse does not require much yard maintenance. And, unfortunately, yard maintenance is a responsibility that tenants usually do not carry out well. It’s typical for me, in my site visits, to see the yards of single family homes neglected even though our lease is very specific about tenant responsibilities in this area.

While yard neglect is a problem that we address pretty quickly with tenants, the main thing is, it’s a whole lot better not to have the problem at all. Plus, single family homes come with the added liability of a larger roof and more interior square footage to maintain.

Is smaller always better?

Well, you might think, if a smaller place is best, then why wouldn’t condominiums make for a better investment than townhouses? Great question. The problem lies in the cost. The substantial condo fee payment that owners have to make each month in addition to the mortgage is pure maintenance cost—it does nothing to gain you equity or increase the value of the home. And, what is more, you have very little control over just how high that fee might go over the years you own the place. Do the math, and that fee takes a whopping bite of our your return on investment. And then there’s the issue of the neighboring units; the resident above you overflows a toilet and it rains in your kitchen. You won’t experience that problem in a row house.

And sure, most townhouses do come with HOA fees—which also cut into your return and have an annoying way of going up each year. Townhouse HOA fees, however, are typically only about a quarter to a third of what condo fees cost—and where there are amenities to maintain, can actually do a lot to contribute to the overall desirability of the subdivision.

The Best Investment Townhouse Configuration

While structure makes all the difference for cost of maintenance, room configuration matters when it comes to sheer appeal for the largest possible population of renters. No matter who they are – young professionals, a family, whatever—you’ll find most renters want the following configuration elements:

  • A minimum of three bedrooms.
  • At least two and a half bathrooms (preferably three).
  • Three finished levels.
  • A family room or recreation room.
  • A large utility room or better yet, an attic for storage.

Having a garage is always nice, but it’s not essential providing the association allocates at least two assigned parking spaces for the property.

My Townhouse Tips for Smart Investors

Pick an end unit.

End units will typically rent for more than interior units—due to the increased privacy and larger yard area.

Go with gas.

A gas furnace rather than a heat pump is a real plus. (Try to stay away from an all-electric home.) In fact, the more gas appliances the home has the better. With gas appliances, the tenant’s utility costs will be spread among three utilities–electric, gas and water–rather than just electric and water. And tenants definitely prefer the resulting cost savings. Receiving large electric bills during he peak heating and cooling months is a rude shock for most tenants—and it can be pretty disruptive to their budgets.

The newer, the better.

Try to pick a property that is no more than 30 years old; otherwise you’re probably going to be faced with major system, appliance and fixture upgrades.

Location, location, location!

You’re used to hearing it, but what does that really mean in our area? While there are still bargains to be had in Northern Virginia, you do need to know where to look. Unless you have the funding for a substantial down payment, you probably won’t find any investment properties worth pursuing inside the Beltway (except possibly in certain areas of Alexandria).

My suggestion for finding the best investment property in our area is to look to western Fairfax County and the adjoining parts of Loudoun County. Whether new construction or an older home, rents in this area appear to be fairly consistent and dependable—and demand is about as steady as most areas inside the Beltway. Do not be swayed by a great bargain you may find in Prince William County! You may be able to pick up a property for next to nothing, but it’s been our experience that keeping homes rented in most neighboring Prince William and Manassas locations is very problematic. The location is simply not as commutable for most people as western Fairfax and eastern Loudoun Counties and the rents are as a rule considerably lower.

And of course, anything you can find that’s close to the new Silver Line Metro is going to be a real goldmine.

David Norod is the principal broker of WJD Management. He enjoys keeping his 400+ property owners up to date on the best ways to keep their homes rented and running smoothly. When he’s not managing properties, he’s playing classic rock in local clubs with his band Off The Record.