Over the past 30+ years, I have purchased seventeen investment properties. Some HORRIBLE (I sold) and some great (Still Own). Here are my lessons to help you find a great location that generates high rents and above average long-term returns.
FINDING GREAT RENTAL PROPERTY LOCATIONS
WOULD YOU LIVE THERE?
I made the mistake of buying five properties, I would never voluntarily live. Yep, I sold those five, AT A LOSS or at best breakeven! If you would not live in your rental property, why should a tenant!
CAN TENANTS FIND A GOOD JOB?
Tenants need jobs/earnings to pay your rent. Ideally you want tenants with good salaries, so you have a steady and increasing rental income. An area with high tech jobs is desirable. You need the ability to increase the rent periodically as your cost will increase (insurance, taxes, etc.) Diversified jobs with multiple industries also make a good location.
Below example job sites can be utilized to search for key factors including: City; Industry; Zip code; Etc.
IS THE POPULATION GROWING?
The best place to invest in real estate will have population growth. This is closely tied to the state of jobs and the economy.
Click below link to see population data.
WHAT IS THE PRICE TO RENT RATIO?
Price to rent ratio is found by taking the median price of houses in the location and dividing by the median annual rent. The best place to invest in real estate will have a lower price to rent ratio, meaning that whatever you paid for the investment property, you can charge rent that covers all cost and provides a good return
IS THE NEIGHBORHOOD WALKABLE, DOES IT HAVE GOOD PUBLIC TRANSPORTATION?
People enjoy locations where they can walk to major conveniences, such as parks, stores, etc. In addition, some Americans prefer public transportation versus the thousands of dollars in annual costs to own a car. Your tenants will need convenient access to the freeways. Just as you would if this were your home, test drive from the potential property to the freeway and determine how many miles and the time. This can be added to the rental advertisement.
WHAT ABOUT THE CRIME STATS?
In 2020, we have seen increasing violence in major US cities. Many people are looking to escape. Investigate the crime rate of the area you are looking. Drive around the areas and look for signs such as bars on windows or gas stations with protective cages. I advise you to pass on properties in those areas. Stop by the Police Station and ask an officer their opinion. You want your tenants and their family to be safe!
ARE THE SCHOOLS PERFORMING?
A good school district is critical to adults with children looking to rent or future buyers of your investment property. Most families cannot afford to pay rent and send their kids to private school!
You can find school and other location data using below links:
IS THIS A GOOD LOCATION FOR LANDLORDS?
Look at states and cities where the laws favor the landlord. Review the eviction laws prior to making an investment. Chicago, can take several months to evict and during the winter months you legally cannot evict when temperatures drop below ~32 F (Potentially four or more months!).
ARE RETIREES MOVING IN OR OUT?
The Best Places to Retire in America Are All College Towns
Some town attract retirees, which means population growth. “For North Carolina seniors, ages 65 and over, NC State University, located in Raleigh, NC, offers a tuition-free waiver for college class audits. And for retirees who are into the food scene, Raleigh has much to offer in the way of bakeries, breweries and restaurants. In 2018, area chefs received three different James Beard nominations — one of the highest honors in the food industry. First-class healthcare is also available as \nearby Duke University Hospital ranks as one of the top hospitals in America, according to U.S. News & World Report.”
Some other items to consider regarding location – 1) Access to Quality Healthcare; 2) Near community and/or 4-year college/university.
The best location to start your rental property business is your own backyard or reasonable driving distance from where you live.
- You are familiar with the area.
- Understand the market value of properties as well as average rents.
- Can manage the property yourself (saving 7-10% of the monthly rent).
- Can maintain and make minor repairs.
ADDITIONAL DATA RESOURCES
There are several free and paid resources to help you conduct market research on various areas of the country. Use them for information on the economic growth, housing demand, vacancy rates, average income, and average housing prices in different areas.
- https://www.census.gov/quickfacts/fact/table/US/PST045219 Will provide economic and population data by state, city and zip code.
- http://Mashvisor is a partially free website for assessing vacation rental prices, the current supply, and the viability of a potential investment. Some features require a paid upgrade.
- http://Local Market Monitor is a paid site that provides market demographics, market investment ratings, and http://capitalization rates.
- http://Department of Numbers is a free site with population, job, housing, and economic statistics.
- http://Census.gov is a good source of vacancy rates.
- http://PwC’s Emerging Trends in Real Estate 2019 shows the top U.S. real estate markets.
To gather more data request the information from your real estate agent and utilize google search.
PREVIOUS RENTAL INVESTMENTS BLOGS
REAL ESTATE INVESTMENTS – THE BEST WAY TO BUILD YOUR WEALTH!
HOW TO GROW POSITIVE CASH FLOWS FROM RENTAL PROPERTY INVESTMENTS
THE BEST INVESTMENT TO MAKE BY AGE 30 – REAL ESTATE
I am starting a new series on Rental Properties. IF YOU HAVE OTHER TOPIC SUGGESTIONS, PLEASE SEND ME A NOTE USING THE COMMENTS SECTION.
Upcoming Tentative Topics Include:
- IDEAL LOCATIONS
- FINDING HIGH ROI PROPERTIES
- FINDING A GREAT REAL ESTATE AGENT AND PROPERTY MANAGEMENT FIRM
- A WIN-WIN STRTAEGY FOR NEGIOTIATING THE PURCHASE CONTRACT
- HOW TO INVEST IN LONG DISTANCE PROPERTIES
- SCREENING AND SIGNING A GREAT TENANT. TAKE YOUR TIME FINDING A GOOD TENANT AND EVICT FAST WHEN YOU HAVE A BAD TENANT
- WHAT IS BETTER? CONDO, TOWNHOME, SINGLE FAMILY VERSUS MULTI FAMILY UNITS?
- PROS AND CONS OF PAYNG HOMEOWNERS ASSOCIATION FEES
- MANDATORY- YOU HAVE TO GET THE PROPERTY PROFESIONALLY INSPECTED
- ADVNATGES AND DISADVANTAGES OF BUYING A TURNKEY PROPERTY VERSUS ONE THAT NEEDS WORK
- FINDING FOOD LICENSED AND INSURED CONTRATORS
- USING OTHER PEOPLE’S MONEY
- INSURANCE NEEDS – INCLUDING LOSS OF RENT, LIABILITY AND UMBRELLA POLICY
- HOW TO EVALUATE YOUR RETURN ON INVESTMENT (CASH FLOW AND LONG TERM APPFECIATION)
- TAXES – THE GOOD; THE BAD; THE UGLY
- LLC OR OTHER PROTECTIVE STRUCTURES
- BUILDING AND IMPLEMENTING YOUR STRATEGY INCLUDING AN EXIT PLAN
- PROS AND CONS OF HAVING PARTNERS
- REFERENCES: WEB SITES, BLOGS, BOOKS, ETC.
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I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life. It is my time to serve and give back.
I started my first business at ~13 years of age (small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.