Are you thinking of owning a rental property in 2020? As a first-time real estate investor, the idea can be intimidating. There are many risks to real estate investing that can obliterate your returns. So, how can investors ensure success?
Where you buy your investment property will greatly determine your return on investment. When buying an income property, it’s always recommended that you invest in the best rental investment markets. The truth is that not all real estate markets are good for rental investment. So before you purchase an income property, you must study the location to see if it is ideal for real estate investment. Generally, an ideal location for rental investment is one that is desirable to your target tenants and profitable to you.
The best rental investment markets have some things in common. The following are some of the most important things to look for:
10 Features of the Best Rental Investment Markets
1. Growing Job Market
The best rental investment markets have a flourishing job market. Locations that are major business hubs with growing employment opportunities tend to attract more tenants. If a particular location has several big companies, people searching for jobs will be attracted to that place. As workers flock to such areas for work, they will also be searching for a place to live. As such, there will be fewer vacancies for rental properties in these rental markets. An increase in the demand for rental properties will also lead to an increase in house prices and rental rates.
2. Future Developments
When looking for the best places to invest in real estate, it’s also important to consider a location’s future potential. If there are several planned development projects, it’s probably a good growth area. Watch out for new development projects like road construction and building of malls that could influence the prices of rental properties in the area. New development projects also mean that there will be more jobs created in the area.
However, be wary of new developments that could hurt the value of rental properties such as the construction of new condos. You can get information on new development plans in a particular market from the municipal planning department.
3. Close Proximity to Public Amenities
Tenants want to live in areas where they can easily access essential amenities like schools, hospitals, restaurants, shopping centers, grocery stores, gyms, parks, etc. Therefore, the best rental investment markets are those that are near a variety of these amenities. Make sure you tour the area and check for the availability of public amenities that would attract renters.
4. Low Crime Rate
Most tenants will pay more to live in a safer environment rather than pay less to live in cheaper, crime-ridden areas. Therefore, a low crime rate is another important feature of the best rental investment markets. Regardless of your real estate investment strategy, make sure you conduct some investigation to find out if your target location is safe. You can check the crime statistics of the area with the police, at the local library, or online. If criminal activity in the area is increasing, that would be a red flag. Note that the agent or homeowner trying to sell you an investment property may not be so open about this.
Related: Best Places to Buy Real Estate: 5 Cities with Low Crime Rates
5. Booming Tourism Industry
If you are looking for the best places to buy a vacation home, tourism is one crucial characteristic you have to keep in mind. The most profitable Airbnb locations are those that are near parks, beaches, and other tourist attractions. As an Airbnb host, investing in such areas will guarantee a high Airbnb occupancy rate. With an increased demand for vacation rentals, you will also be able to charge higher rental rates.
6. Favorable Airbnb Regulations
Not all areas that have a high demand for short-term rentals would make for the best vacation rental investment markets. You also have to check the local Airbnb laws and regulations since they vary from city to city. In some housing markets, short-term rentals are banned or require special licenses and permits. To avoid serious legal issues, make sure you study the Airbnb regulations of your target market.
7. Low Insurance Costs
Insurance costs are also another important factor to consider when looking for the best rental investment markets. As a real estate investor, insurance costs can affect your net profits. Avoid housing markets that are prone to natural disasters like hurricanes, floods, tornadoes, and earthquakes. Insurance costs in such areas tend to be very high.
8. Reasonable Property Taxes
Property taxes will also eat into your rental income. Since property taxes usually vary depending on the location, you want to know how much you will be paying in taxes before investing in an area. Generally, metropolitan areas tend to have higher property taxes than rural areas. Some towns, especially those in financial distress, may raise property taxes far beyond what investors can reasonably charge in rent. However, keep in mind that areas with low property taxes are not always the best rental investment markets. Be sure to first check the local tax information.
Related: The Best States with No Property Tax for Real Estate Investing
9. Low Number of Rental Listings
As a property investor, you also need to look at the level of competition in an area. A neighborhood with an unusually high number of rental properties indicates that there is intense competition for tenants. If the demand for rental properties is lower than the supply, landlords will be forced to lower their rental rates to attract tenants. The best places for buying a rental property are those with fewer listings. In such areas, there will be a lower vacancy rate and landlords can charge higher rents.
10. Good Average Return on Investment
The final feature that the best rental investment markets have in 2020 is a good average return on investment. Naturally, if a location has a combination of the features listed above, it will make for a good place to invest in rental properties. But you need to be sure by checking what kind of return on investment (ROI) you can get. If you’re not sure what a good return on investment is, read: What Is a Good Return on Real Estate Investment?
One thing to keep in mind is that the average ROI for a location is usually very low. While you may know that real estate investors only go after investment properties with an ROI of 10 or 20%, most cities and neighborhoods will have averages below 10%. Still, the higher the average is, the more likely you will find high ROI properties for sale in that area.
How to Find the Best Rental Investment Markets in 2020
You now have a good understanding of what makes the best rental investment markets. There are several housing markets in the US with these features. But how do you find them? Finding the best places to invest in real estate could be an overwhelming task considering the many cities and neighborhoods across the country to choose from. This is where Mashvisor comes in.
I strongly recommend using Mashvisor’s tools for your real estate market analysis. To identify up and coming cities in the US housing market, be sure to check out Mashvisor’s real estate investment blog for city-data. Here are a few places to start:
- Where to Invest in Real Estate: The Highest Cap Rate Cities in 2020
- What Are the Best Multifamily Markets 2020 with High Cap Rates?
After finding an ideal city for real estate investment, the next step is to find up and coming neighborhoods through neighborhood analysis. You can do so in a matter of minutes by using Mashvisor’s real estate heatmap. This tool uses real estate data and predictive analytics to analyze the best neighborhoods in your city of choice based on real estate metrics like rental income, cash flow, cash on cash return, cap rate, and Airbnb occupancy rate. The search results are presented on the heatmap in different colors for easier interpretation.
Mashvisor’s Heatmap Analysis Tool
Related: Airbnb Rentals: Finding Income Properties Using a Heatmap
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
The Bottom Line
If you are wondering where to invest in real estate in 2020, your best bet is investment locations that have the above features. When you go for a market with most of these features, you are more likely to find profitable investment opportunities. Once you purchase an income property in a location that your end customers desire, the economics benefit you. You will enjoy the highest occupancy rates, command the highest rental rates, and be able to increase your prices over time. Take into consideration all these features to find yourself the best rental investment markets in 2020.
