A rental property is no small investment. Choosing the right location is a key to success.
There can be pressure to determine the best location for your next rental property. Will that neighborhood attract the renters you want? Does it have a good-sized rental population? What is the average rent in the area? What is the average vacancy rate? The list goes on.
With so much riding on the location of your rental property, how do you make the right decision?
Research!
With thorough research, anyone can make money investing in rental properties. You don't need to know everything. You just need to know people who do. With this three-step process, choosing your next rental location should be a breeze.
Step 1: Look at the big picture
The first step in choosing a location is to look at the big picture:
- Population growth
- Crime
- Rent vs. ownership
- Average rent
- Unemployment rate
The best rental property locations have good population growth, low crime, nice rental price averages, low unemployment, and a decent-sized population that rents.
This information is easier to find than you might think. I use Data USA to look up the big data. Other options are the U.S. Census, BLS.gov, and the local Chamber of Commerce.
To find average rent prices, I review rental prices on various apartment listing sites such as Apartments.com. According to Coach Carson, using the price/rent ratio will help you to determine if the location is ideal for a rental property. It's simple. Take the median house price and divide it by the median yearly rent. The smaller the number, the better the investment.
For example, the median house price in Evanston, Illinois, is $356,000. The median annual rent is $22,596. The price/rent ratio is 15.7. Coach Carson recommends that you purchase a rental that has an 8 or under price/rent ratio, so Evanston's price/rent ratio is a little high.
Step 2: Research at a micro level
The next step in researching the location of your latest rental property is looking at your possible locations on a smaller level.
- Are the schools good?
- How walkable is the location?
- Is there public transportation?
- What amenities are nearby?
- Is there a college or university in the area?
- Is it close to a big city with job opportunities?
- Are there restaurants and cafes nearby?
- Are there parks, beaches, and/or greenery?
The best way to research this is by spending time in the neighborhoods you are considering during the day and at night. What is the overall vibe of the location? Would you want to live there yourself? You can also go to Walkscore to learn how close amenities are to properties you're considering.
Step 3: Connect with a real estate professional
Once you've completed the first two steps, you have your location search narrowed down. The last step is to bring in the professionals. Find local real estate agents who specialize in working with investors. They know the market better than anyone. They work with real estate investors every day and know what properties should yield the most profits.
A real estate agent who works with investors is a great resource. They figure you might not be a one-time buyer. By making you happy and finding the right property that generates great income, you'll probably use them for your next property. They have extra incentive to find the right property. A great agent can guide you to the right investment.
Conclusion
A real estate investment cannot be taken lightly. The investment is big, and the right profit margins need to be there. As you expand your portfolio, track expenses with Apartments.com. Our expense tracking platform helps you summarize rental expenses by property and tax category. From there, you can easily export them to CSV or PDF formats to easily keep track of costs for each rental property.
Do your homework and follow this three-step process for finding the right location for your rental property. By doing the legwork ahead of time, you can help ensure your investment is the right one.
