When investing in real estate, one mistake that property investors fall into is focusing solely on the investment property and its purchase price. For a successful and profitable investment, there are several much more important factors that a property investor should take into account before buying an investment property: most importantly the location or the real estate market itself. Not paying attention to the real estate market is a huge mistake as the property is rooted in that market. So, here are the major factors that a property investor should consider to find the best places to invest in real estate.
Best Places to Invest in Real Estate – Economic Factors
1. Population Growth
The goal of every real estate investor is to make money and gain profits. In traditional real estate investing, rental property investors make money through the monthly rent which they collect from their tenants. Now, no matter how profitable your rental property may be, you won’t be making a profit if you can’t find tenants to rent the investment property. This is why the first factor that defines the best places to invest in real estate is the housing market’s population.
The best places to invest in real estate are real estate markets that are large enough to provide rental population. Find out how many people live in that area. Obviously, no property investor wants to invest in a small town where there’s a very small pool of potential tenants.
Another thing to search for is whether the population in the real estate market is expanding or contracting. As you would expect, areas with a growing population are the best places to invest in real estate simply because more people = a larger pool of tenants. In addition, demand for real estate investing is higher, which will ultimately push both rental prices and sale prices up. On the other hand, when the population in a certain area is declining, this means that the economy in that area is declining as well, which is a bad sign for a property investor.
One sign that indicates a growing population is the construction of new investment properties as it means that more residents are moving to that market.
2. Job Trends
The next factor to watch out for to identify the best places to invest in real estate are job and employment trends. Look at the unemployment rate in the area: Is it high? Are people having trouble finding jobs? Property investors should always invest in areas with growing job opportunities because this factor is tied to the population. Markets with more job opportunities attract people, meaning that the population in these markets is expanding.
While looking at job trends, a rental property investor should also take wages into account. Are they rising, falling, or stagnant? Areas in which wages are rising are the best places to invest in real estate; it means that demand for employment is high, thus employers raise wages to attract the best (or enough) employees. Not only is this a sign of a growing economy, but also a property investor will be able to find ideal tenants; i.e., those who are financially stable and are able to pay their monthly rent in full.
One sign of good job and employment trends are buildings going up for business (commercial real estate). Moreover, all of this information about job trends in real estate markets could be searched and found online.
3. Diverse Economy
The last category of economic factors to watch out for is how diverse the economy is. In other words, what drives the economy? Obviously, the more diverse the economy is, the better off a real estate investor will be. For example, in an area in which the economy is driven by tourism, a property investor will have a better chance of making money from real estate if he/she invested in short-term or Airbnb investment properties. And even then, the profit he/she makes will depend on how many Airbnb guests he/she attracts and how much rent he/she charges. During times when tourism is weak, property investors will have to deal with high vacancy rates.
The best places to invest in real estate are those whose economy is not driven by one industry but multiple ones. For example, the Orlando real estate market is considered one of the best places to invest in real estate because of its diverse economy; the city is one of the top tourist destination in the country (thanks to many attractions such as Disney World, Universal Orlando Resort, and many more), and the population is growing thanks to the many job opportunities the city has to offer to residents.
Related: Why the Orlando Real Estate Market Is the Best for New Investors
Markets with more economic sectors are more stable and more likely to grow, leading to a stable real estate market.
Best Places to Invest in Real Estate – Real Estate Factors
1. Price-to-Rent Ratio
Property investors use the price-to-rent ratio to determine which makes more 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 a certain real estate market, the average investment property is worth $300,000, and the average rent rate is $1,500. In this market, the price-to-rent ratio would be 16.6.
Look for real estate markets with lower price-to-rent ratio because, in these markets, property investors can charge a decent rent and receive a good return on investment no matter how much they paid for an investment property. Generally, the best places to invest in real estate are those with a price-to-rent ratio of 16 to 20, as according to Trulia, this number indicates that it’s better to rent than to buy. For rental property investors, this means they’ll have a better pool of potential tenants in these real estate markets. A real estate investor can easily get hold of price-to-rent ratio information through Mashvisor, which provides information about property prices in any real estate market in the US.
Related: Price-to-Rent Ratio: Everything You Need to Know
2. Vacancy Rates
The next factor to watch out for is vacancy rates in the real estate market. As mentioned earlier, a rental property won’t do any good if the property investor can’t find tenants to rent it out to. This is why the best places to invest in real estate are those with a low vacancy rate, meaning the rental property will be occupied and generating a profit for the real estate investor.
To evaluate vacancy rates in a certain real estate market, look at the time that investment properties spend on the market (are they being sold quickly or do they take a lot of time to be purchased?). Also, evaluate vacancy trends, what type of investment properties stay vacant the longest, and how much time it takes to fill a vacant rental property. Real estate agents and property managers in the local real estate market are the best source to find this information.
Mashvisor provides real estate investors with vacancy rates information for any neighborhood in the US real estate market to help them find the best places to invest in real estate. Click here to start searching for the best real estate markets with low vacancy rates!
Best Places to Invest in Real Estate – Regulations Factors
Real Estate Property Taxes and Laws
Some real estate markets are friendlier to property investors than others. For instance, two individual investment properties with a similar purchase price, conditions, and rental potential will generate a different return on investment based on property taxes and whether the landlord-tenant laws are more or less favorable. For a real estate investor, the best places to invest in real estate have low property taxes and landlord-friendly laws.
Related: The Best States With No Property Tax for Real Estate Investing
Best Places to Invest in Real Estate – Local Market Factors
As your goal is to attract tenants to rent your investment properties and generate a profit, as a real estate investor, you need to understand the factors that attract tenants to the market in the first place. In general, people look to live in areas where they feel safe. The best places to invest in real estate are those with low crime statistics, not prone to natural disasters, and in a good school district.
Furthermore, the majority of tenants prefer to live near their workplace, shopping centers, restaurants, movie theaters, and other entertainment facilities. Thus, it’s best to invest in a rental property near these facilities as well as access to transportation as these increase the demand for your rental property.
How to Find the Best Places to Invest in Real Estate?
Now that we’ve covered what factors make for the best places to invest in real estate, you might be asking yourself “How do I find these real estate markets?”. Well, a property investor who conducts a real estate market analysis is far more likely to find good investment properties in the best places to invest in real estate.
As we’ve stated, location is a key factor in determining your investment’s success and profitability. A real estate market analysis evaluates different locations and real estate markets as well as all above-mentioned factors that affect the profitability of an investment. In addition, a real estate market analysis also analyzes the investment property itself and estimates its rate of return!
Mashvisor provides actual and future property investors with the best investing tools to successfully conduct a thorough real estate market analysis such as Mashvisor’s investment property calculator, a real estate investing tool that allows a real estate investor to find and analyze different investment properties across the county based on different metrics.
Click here to start analyzing investment properties and find the best places to invest in real estate with Mashvisor!
Final Thoughts on the Best Places to Invest in Real Estate
Real estate investing is not really that different from other types of investment. All a real estate investor has to do is to identify the best places to invest in real estate in order to guarantee a successful and profitable investment. Real estate markets with the above-mentioned factors are considered the best places to invest in real estate because they present the maximum potential with the least amount of risk. Property investors should take these factors into account to narrow down their choices and find the best real estate market, and then pick an investment property within that market.
Check out Mashvisor’s knowledge center for more information on anything real estate, and sign up to get hold of Mashvisor’s investment property calculator.