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Step 1: Population Growth 1:07 – Link to check population stats: https://www.census.gov/programs-surveys/popest/data/tables.html
Always look for metro areas that are seeing population growth. To check these statistics I go to Census.gov. Population size has a massive effect on a market and can effect supply & demand which is ultimately what drives real estate prices and rents. You want to pick metros that are showing growth and in the top 150 as far as population size is concerned. With that said, whatever you do, stay away from cities or metro areas with declining populations.
Step 2: Job Growth 1:56 – Link to check job stats: https://www.bls.gov/eag/
Jobs are another important factor to consider when buying rental property. Jobs are great because they can lead to population growth. To check Job stats, I look at the U.S. Bureau of Labor Statistics.
I also like to look at new jobs coming to town, recent business moves, or upcoming corporation relocations. A few ways to research this would be googling your city of choice along with the words jobs or economy, check your local business journal newspaper online, or speaking with local real estate investors
Step 3: Diverse Economy 2:44
When choosing a market to invest in, it’s important to choose a market that doesn’t rely too heavily on one job sector. Detroit is an example of a market that suffered due to a lack of a diverse economy. It’s a good reminder to choose a market that has a strong and diverse economy. To check on how diverse an economy is, research a markets biggest employers see which job sectors they fall under. While doing that, ask yourself if these companies are reputable and are their products in constant growing demand.
Step 4: Rent To Price Ratio 3:35
Rent to Price Ratio is what a Property rents for vs the purchase price. If I purchased a property for $100,000 and it rents for $1000, then that would be a 1% rent to price ratio. I like to look for markets with properties that meet or come close to the 1% rule. If I can’t find them then I will not consider that market for investing. This is because I have a certain Return on Investment I look for. When doing research on this in a metro area, I look for places where I can buy a 3 bed 2 bath single family house for less than $150,000. When you get higher than that, the rents just don’t continue to keep up the same way and you’ll start getting diminishing returns.
Step 5: Landlord Friendly State 4:34
Every State has their own set of laws dictating how things work between landlords and tenants. When researching how landlord friendly a state is, the most important things to check are eviction laws, rent control laws, and what the tenants rights are. Some areas may even require licensing or certification to rent out a property. If you were to evict a tenant in a landlord friendly state, you might be able to evict them in just a few weeks where as if you were to evict a tenant in a tenant friendly state, it could take you 3-6 months.
Step 6: New Developments 5:51
New developments can be a good sign of upcoming market. I like to see things like new buildings, shopping centers, highways being built, downtowns being redeveloped, school or airport expansions, and more. My favorite way to check on this is going to your City’s Official Website or your city’s chamber of commerce website and look and go to the economic development section where they should have some kind of economic development plan. Other ways of finding this information is searching on google, speaking with city officials, reading your local business journal newspapers online, or speaking with local real estate investors.
Step 7: Supply & Demand 6:36
Supply & Demand has the biggest effect on real estate prices. When it comes rental properties, in an ideal market supply should be low and demand should be high. To find information on rental supply I recommend talking with local Real Estate Brokers or Property Managers. To find information on demand it can be a little harder. If you see move-in specials then that would be a sign of low demand where as if rental listings are coming off the market after 1 or 2 weeks and you’re not seeing any incentives, then that could be a sign of high demand. You also want to consider future supply. If there’s a lot of supply coming then rents could be affected negatively. If you have an urban growth boundary restricting construction, this could help bring prices up due to lack of supply and high demand.
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