The good news about being a residential landlord is you can buy property anywhere you like and still be successful. People who live in highly expensive cities with rent stabilization — New York, Los Angeles, and San Francisco, for example — shouldn’t have to invest in those towns.
It’s often a good idea to be a landlord close to home, but if home isn’t conducive to being a landlord, it’s probably better to choose a different market. But what sort of parameters should you use?
Location
Research conducted by Apartment Guide found that 62% of renters say location is more important than the actual rental unit.
And indeed, location is always the most important factor in real estate. You can’t change location, since land is immobile. The significance of this for investors is that the value of real estate is directly affected by its surroundings: Certain locations are more valuable than others.
When deciding which type of market to buy rental property, choose an area with traits desirable to renters:
- A healthy economy
- People moving to the area (demand)
- Job opportunities nearby
- New construction (determine this by contacting the local planning department)
- Low unemployment
- Affordability
Price
After location, renters look for a rental unit based on their budget. Although landlords can find renters looking to rent a high-end, expensive property, the market is smaller compared with the market for moderately priced homes.
Just look at the parameters iBuyers set for buying homes to guide you, as they have fancy algorithms that help pick investment property. Opendoor Technologies (NASDAQ:OPEN), for example, buys homes in affordable cities (usually avoiding the expensive coastal towns). It sets a price parameter of between $100,000 and $600,000, but it can be higher, depending on the market.
Vacancy rate
Nothing kills the bottom line faster for a landlord than vacancies. So it’s a good idea to find out the area’s vacancy rate. You can find this information by looking for rental units yourself online. This shows how many properties are listed and how long they’ve been sitting.
You could also ask area property managers which neighborhoods have a higher or lower vacancy rate. A high vacancy rate doesn’t necessarily mean you won’t be successful, but it warrants further investigation. If the location is in decline and the vacancy rate is high, for example, you should probably avoid the area.
Some good markets
Real estate investors have been focusing on the following markets for 2021. This is not a complete list. It’s given as a starting point as the sort of market to further investigate because of career opportunities, affordability, and population growth:
- Boise, Idaho
- Orlando, Jacksonville, and Tampa, Florida
- Dallas, Austin, and Houston, Texas
- Raleigh-Durham, North Carolina
- Atlanta
Tips to break into the landlord business
It’s tough to break into the landlord business today because the competition is high to buy investment property. You’re competing with institutional investors, iBuyers, and first-time homebuyers. It’s not impossible to find deals; it’s just harder.
Source: The Motley Fool
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