Everyone in real estate talks about location and how it can make or break an investment property. So, a new real estate investor does everything he/she can to find the best place to invest in real estate. But what does this location look like exactly?
Sure, there are elements of a location that are subjective in the eyes of different buyers. Certain people have different preferences, and while we try to cater to most, we can’t cater to every single one of them. However, there is still the objective side of the location of an investment property. These are things that will bring a high rental income, a positive cash flow, and a good return on investment because tenants won’t be able to turn away from them. The following are the characteristics of the best place to invest in real estate.
Characteristics on a Larger Scale
When you start to look for a good location, you’ll naturally start on a larger scale of the state and the city before jumping into investigations of neighborhoods and streets. So, that is where we will begin when looking at the characteristics of the best place to invest in real estate.
Good Job Trends
The first thing you should investigate when trying to narrow down places for buying a rental property is job trends. This is because one of your ultimate goals when investing in real estate is to find tenants. Tenants are naturally attracted to places where they can work and make good money.
You want to compare the number of jobs in different areas for investing in real estate. You also need to look at the trends: Are the number of jobs increasing or decreasing? There may be a good number of jobs now, but if an industry is being uprooted in the future, that could mean a great loss in jobs, and you need to be aware of this as a real estate investor. You might even find that the government is interested in increasing jobs in a certain location in the near future, which also bodes well for any real estate investment. Basically, an area with steady or increasing job growth will make for the best place to invest in real estate.
Other things to consider when it comes to jobs is the kinds of jobs and the salaries that go along with them. Pay close attention if the types of jobs the local industry brings are becoming irrelevant compared to high-tech jobs. You want your tenants to have good salaries so that you can have a steady rental income for positive cash flow. Diversified jobs with multiple industries also make for a good economy in a location for buying a rental property.
Also, review unemployment rates to get more information about the job trends.
The best place to invest in real estate will have population growth or the potential for it. This is closely tied to the state of jobs and the economy. The more jobs brought in to an area by different companies and industries, the more people will come from all over to live in such a location, increasing the demand for real estate.
Of course, there are places that people flock to because of other reasons besides jobs: good weather, beautiful natural attractions, good local politics, etc. These are other factors that will come up in a thorough real estate market analysis. A location that lacks these elements and doesn’t make up for it in any way probably won’t be the best place to invest in real estate.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Low Price to Rent Ratio
Another factor that represents the state of the economy in the area is the price to rent ratio. This is found by taking the median price of houses in the location and dividing it 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’ll be able to charge a decent rent in comparison to get a good return on investment.
This kind of information is easily accessible through Mashvisor. Just choose an area you’re interested in for buying a rental property and information about median property prices will appear as well as the rental income.
To learn more about our product, click here.
Related: The Best Real Estate Markets to Invest in the US for Price to Rent Ratio
Characteristics on a Smaller Scale
Now that we’ve reviewed the characteristics of the best place to invest in real estate on a larger scale, it’s time to narrow it down to specific neighborhoods and streets. What should you look for in these smaller areas?
Appealing to Emotions
While the general advice for real estate investors states that you shouldn’t invest in a home based on your emotions, owner-occupiers, buyers, and tenants aren’t expected to adhere to this. In reality, they’re looking for a place to fall in love with and you want to try to give that to them. While everyone is unique, there are certain things you can look for to spark their emotions. This would mean the best place to invest in real estate will be close to parks, have beautifully landscaped streets, be close to commercial districts with unique local shops, and be around restaurants with fine cuisine, quaint coffee shops, and pubs.
This might be a little harder to discover online, unlike the rest of the statistics and trends we’ve discussed. What you can do is visit the location and see which places have the potential to give these romantic buyers what they want. This will help increase your potential for making money in real estate for sure.
Walkability and Good Public Transportation
The best place to invest in real estate will have the factor of convenience for your tenants. Either they will have no trouble walking to all the major places they need to get to, or public transportation (like bus stops and subways) won’t be too far of a walk from their homes. This is important because people want convenience in their everyday lives, and you have to invest in a place that gives it to them. If it is an area where lots of car travel is inevitable, make sure to look at the freeways and connected streets to make sure there is still some level of convenience in travel.
Low Crime Rates
Safety is a human need that is considered a top priority, and you need to think about it when buying a rental property. No one wants to live in a location where he/she can’t walk home alone or have to constantly worry about break-ins and such. Investigate the crime rate of the area you are looking at. You can even go the extra mile of visiting the area and looking for bars on the window or how many people are out and about after dark. There will be good indicators of whether or not people feel safe there.
Good School Districts
The best place to invest in real estate will be close to or located in a good school district. This will be important to families or people with children looking to rent or buy your investment property. If you don’t consider this, you’ll be limiting your potential tenants.
Lenient Local Laws and Taxes
A real estate investor knows how important it is to be aware of the laws and taxes that are unique to an area. While they aren’t in your control, you can find certain areas where rental laws are more lenient, and licenses are easier to obtain or even cheaper. Also, review the eviction laws because the best place to invest in real estate will be an area where the laws favor the landlord.
Related: What You Need to Know About Eviction Laws in the US
Low property taxes are also something to look for in the location. While property taxes are inevitable, you can use an investment property calculator to see which taxes will cut into your rental income the most and which will give you the best return on investment. Are these taxes spent well in the location? Check to see if there is good maintenance of the area: trash pickup, street cleaning, fire and police services, etc.
Related: The Best States with No Property Tax for Real Estate Investing
Low Chance for an Increase in Supply
The best place to invest in real estate will have a high demand for your investment property with a low supply. This will mean that you can have higher value, price, and rent. A real estate market analysis will help you determine what locations fall into this description. While a location can have high demand and low supply when you first invest in it, it’s possible that there will be expansion in the future.
Your job as the real estate investor is to look for a location that has little to no possibility for an increase in the supply of your investment property. These locations will have borders (natural and manmade), strict land development laws, or limited amounts of specific types of zoning.
It takes a thorough real estate market analysis to find the best place to invest in real estate, but if you know exactly what characteristics you’re looking for, it will be easier. The best place will have a good balance of as many of these qualities as possible, rather than only one or two of them. You’ll find you get the greatest return on investment if you follow this guide when looking for the best location for your real estate investment property.