Many people want to buy investment properties that make them money. But how can you choose the best place to buy investment properties so your dream will become a reality?
Below are some of the most important factors to look at as you decide which city to invest in:
#1 Jobs and Demographics
A real estate investment usually only works well if the people who live in the homes or apartments have decent jobs. If you have an investment property in a town with only one factory and that factory goes out of business, your income is going to suffer. Rents will go down, vacancies will go up, and you will not be able to sell the home for top dollar.
So, one of the key factors in choosing the right city is to study the job market of the city. Here are some things to consider:
- The number of jobs in the area. Is the job market on the rise or falling?
- Is the median salary or wage for workers going up or down?
- What types of jobs do people have in town? Is it high tech, factory, menial labor?
- Is there a diversity of jobs in the city? Ideally, the town should have a lot of different ways for people to find work. A lot of factories, government offices and military bases are big pluses.
- Is the job base focused on one industry? Cities that are dependent upon the oil and gas industry will go through boom and bust cycles.
#2. Growth of Population
Another big factor to decide where to buy your investment property is the population growth in the city. People will usually move to areas with better possibilities for jobs. But there are other important criteria such as weather, prices of homes, and natural attractions.
For real estate investors, it is good to see a region with an increasing population because this usually spurs demand for houses. Remember – the higher the demand plus limited supply means there will be higher rents and higher property values, which are good for your bottom line long term.
In addition to looking at the population growth of the particular Metropolitan Statistical Area, you also want to look at the growth of population in the area that you are studying.
#3. Rent to Price Ratio
The price to rent ratio is very similar to the price to earnings ratio in stock investing. It is a very simple way to do an evaluation of an area for its economic efficiency. To determine what the price to rent ratio is, you just take the median price and divide it by the median yearly rent. The higher the city’s price to rent ratio, the worse the market will be to invest in real estate.
This is why many investors start to shy away from more expensive parts of the country, such as California. The price of real estate compared to the rents is just too high for many investors to make money.
Once you have chosen the city you think you want to invest in, you need to think about where exactly you want to buy property. A key factor is how close the houses or buildings are to where people work. Many experts say that investors are wise to buy properties within 10 miles of a major economic center with a lot of jobs. There are some people who will live more than 10 miles from where they work and shop, but most people will not. It is smart to buy properties in areas where more people want to live for convenience sake.
Another factor when you have decided on the city to buy in is the sexiness factor of the location. If you can afford it, it is wise to buy in places that attract people emotionally to the area. For example, it is good to buy homes near parks, green spaces, with mature trees, nice commercial districts, pubs and coffee shops, and nice views, if possible.
Buying properties in areas with a high walkability score on the site www.walkscore.com can mean your properties will be more desirable to more renters.
If you keep these factors in mind when you are buying, you will be able to buy in a better city and area that will make you more money in the long run.