What Are the Best Areas to Buy Rental Properties?
I received this question yesterday and it is one I have heard a number of times before so I thought I would share my response with everyone by answering it here in a post. If you want to be a serious real estate investor, the answer about where to buy rental properties is more detailed than simply giving out a name of a city or subdivision. It is imperative to understand why that area is a great place to invest. This is so that you are able to identify when the area transitions into a sellers’ market at some time in the future. As the area transitions, you of course want to sell and reposition that investment into the next emerging market area. This fulfills the buying cycle of buying low when the area is a strong buyer's market and then selling high when it is a strong seller's market.
Buy in the bullseye
When you are looking for the best area to buy, you must first find the markets that are poised and positioned to give you the optimum duration of time where the economic drivers are moving forward. You want to find the best markets, and within the best markets you want to buy within the path of progress, and when you get there you want to buy in the Sweet Spot. Yes, just like narrowing in on the bullseye. Let’s take a look...
- Areas that have low unemployment: low unemployment attracts new residents
- Job growth: more industry and business coming to the area
- High job diversity: keeps residences if an industry should falter such as when the auto industry left Detroit
- Population growth: growing population keeps upward demand on homes and rentals
- Affordability: low cost of living and low cost of housing allows for growth of the local economy
- Local economic support: local city planning officials who have 5, 10 and even 20 year growth plans in place tend to attract businesses and sustained growth
Path of progress
Buy in the direction the city is growing: growth tends to happen in a certain part of the city. This is where jobs are created and therefore where the employees will want to live. This will represent higher sustainability. Finding property here will be more sustainable.
The Sweet Spot
Median priced homes: finding the local market's median priced home is your next step as this is the most highly sought after and most liquid real estate investment class. It is also the most profitable as more people can afford to rent here today, and will be willing to buy at retail pricing when you are ready to sell.
Good schools: good tenants and retail buyers want to send their kids to good schools, so the higher rated school districts are important.
As you can see, this is just like finding the bullseye. Any market worth investing in has a path of progress and all markets have a Sweet Spot. This is the price point of a home that can be rented for maximum returns today and be most highly sought after and sold to a retail buyer tomorrow. Finding these in the best markets is just like finding the bullseye.
So where are these markets? They are always changing of course. You can find today’s bullseye by visiting our properties page as we search these markets on a regular basis and they are the only properties we promote.