Buying a long term investment property is definitely one of the best ways to make money in real estate. However, real estate investors often wonder “how can I ensure buying a rental property that is profitable as a long term investment?”
Successful real estate investors know that location is THE main factor to take into account before making any investment decision. This holds true when it comes to long term investments. Before buying an investment property, a real estate investor has to ensure that its location matches the investing strategy. Some locations yield a high return on investment when investing in the long term, while others yield a high return on investment when investing in the short term (Airbnb).
So, what are the features of the best places to buy a long term investment property that real estate investors should keep in mind?
Buy Long Term Investment Property in Locations with Growing Population
The main motivation that drives a real estate investor is making money from investment properties. When investing in a long term investment property, money is made either through cash flow or appreciation. Cash flow is the profit property investors make in the form of monthly rent collected from tenants. This is why it’s important to consider the population of the location in which you’re buying a long term investment property. No matter how profitable your rental property may be, it won’t generate cash flow if there’s no one renting it!
The best places to buy long term investment properties are those with a growing population. These real estate markets provide a large pool of potential tenants who are looking for places to rent. In other words, occupancy rates are high in these locations which is something that significantly impacts profitability. This further means that demand for real estate investing is higher in these locations and, as a result, this pushes the rental income. Consequently, a real estate investor has higher chances of making money from long term investment properties in locations with growing population.
To find such locations, identify the time that investment properties spend on the market for rent, and the time it takes to fill a vacant rental property. Naturally, you want to find places in which long term investment properties spend the least days on market.
To find such information, try contacting real estate agents or property managers in your housing market of choice. Alternatively, Mashvisor provides property investors with rental income and occupancy rate information for any city and neighborhood in the US housing market to help them find the best place to buy long term investment property.
Click here to start searching for the best real estate markets with high occupancy rates!
Buy Long Term Investment Property in Locations That Appreciate
As previously mentioned, when it comes to long term investment properties, real estate investors make money either through cash flow or appreciation. In real estate investing, appreciation is the increase in the rental property’s value over time. Thanks to appreciation, property investors have the ability to hold their investment properties for a long time period and then sell them later on in the future for a much higher price than the initial purchase price, earning them a profit! For example, you might buy a long term investment property for $100,000 and sell it for $200,000 a few years later.
Related: Real Estate Investing for Positive Cash Flow vs. Appreciation
Many real estate investors buy long term investment properties below market value thinking these are a bargain as they’ll appreciate and then they can sell them for a profit. However, many factors affect appreciation such as mortgage interest rates and supply and demand for real estate investing. Therefore, a real estate investor must keep in mind that investment properties appreciate at a different rate depending on their location!
This is why for a successful long term investment, a real estate investor must keep these factors into account to ensure buying a rental property in a location with high expected appreciation.
Buy Long Term Investment Property in Locations Offering Job Opportunities
The next factor to watch out for to identify the best place to buy a long term investment property is job and employment trends. This factor is important because it’s related to growing population and high occupancy rates. A real estate market with growing job opportunities and high employment rates attracts long term tenants, meaning the population in this market is expanding. In addition, these tenants will more likely be financially stable and able to pay their monthly rent in full, which is essential for a long term investment.
Furthermore, high employment rates also indicate a healthy local economy and higher rental income which, as mentioned, significantly impact an investment property’s profitability. One sign of a good job market is buildings going up for business (commercial real estate). For example, the Austin real estate market is considered one of the top markets for real estate investing in 2018 thanks to both its strong job market trends and growing population. Thus, if you’re looking for a long term investment property to purchase, consider looking at the Austin real estate market!
Related: Why Consider Buying an Investment Property in the Austin Real Estate Market?
Buy Long Term Investment Property in Locations with Low Price-to-Rent Ratio
In real estate investing, property investors use the price-to-rent ratio to determine which makes better financial sense: buying or renting an investment property. The formula to calculate price-to-rent ratio is Price-to-Rent Ratio = Home Price / (Rent Rate x 12). For example, suppose that in your local housing market, the median home price for investment properties is $300,000, and the average rent rate is $1,500. In this market, the price-to-rent ratio would be 16.6%
When it comes to long term investment, a real estate investor should look for locations with a price-to-rent ratio of 16 to 20%. According to Trulia, this number indicates that it’s better to rent than to buy a property. Thus, in such a real estate market, property investors will have a better pool of potential tenants looking for places to rent for the long term. Not only that but in such markets, a real estate investor can charge a decent rent and receive a good return on investment no matter how much they paid for an investment property.
Click Here to find the best place to buy an investment in the US housing market!
How to Find the Best Places to Buy Long Term Investment Properties
In order to find such places for a long term investment, property investors have to perform a real estate market analysis. This is the process of evaluating a certain housing market to determine whether it’s good for long term investment or better suited for short term investment. In addition, a comparative market analysis helps real estate investors analyze the target investment property to estimate its profitability as a long term investment before making the purchase.
Alternatively, Mashvisor’s rental property calculator eliminates the need to perform a real estate market analysis! This real estate investing tool shows you which real estate market is the best for buying a long term investment property and estimates the different values for cash on cash return, cap rate, rental income, and the occupancy rate of different investment properties in order to find the best one!
Mashvisor’s rental property calculator is a user-friendly, easily accessible online tool that turns 3 months of property search into just 15 minutes! Sign up with Mashvisor to get hold of this and other must have real estate investing tools. To learn more about our product, click here.
The Bottom Line
To guarantee a successful real estate investing career, property investors need to find the best place to buy investment properties that match their investing strategy. The above-mentioned are features of the best places to buy long term investment properties. If you can’t find these features in your housing market of choice, then it’s best to start searching for other places to buy an investment property. Mashvisor provides real estate investors with the best tools to search for and analyze different investment properties in any city and neighborhood across the U.S housing market, whether for a short term or a long term investment.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.