You’ve made the decision to go ahead and investment in a rental property, so that’s the tough decision out of the way. Now the fun starts with finding an ideal area and then searching for the ideal property.
The right neighborhood will get you off to a good start. It will have a steady supply of tenants whom are willing to pay a market value or even slightly above the average weekly rent to reside in the location of their choice. Electing a less popular neighborhood, maybe one with more than it’s fair share of a challenges including a high crime rate, and lack of jobs will threaten the viability of your investment as your property is rented for fewer weeks through out the year maybe left vacant for months at a time. Therefore a lot of research is required so you choose an area that’s fit for purpose.
Finding the right neighborhood can be a challenge, especially if you’re tight on budget and really can not afford the better neighbourhoods. Here are some key metrics you can use in your research to determine the best location for your rental property:
When property values are high, rental values are typically higher as well. With that said, high home sale prices may make it difficult to buy in to a particular neighborhood or town. Therefore it’s important to know your budget before you go shopping. Then your goal is to find a property in an area that mets your budget and location criteria.
Areas with high unemployment rates may not be a good option, as you’ll have fewer tenants and those that do come through may have difficulty making regular on-time payments. Look for locations with a 70% or higher employment rate.
Consider the area’s median income level. The median income is the middle-of-the-road income level, where half of residents earn more and half of residents earn less than the figure. It also helps to learn how many of the residents are in the upper and lower halves so you know what most of the population can afford based on what they’re currently paying.
Find out what the percentage of owner-occupied properties. Areas with high owner-occupied rates are usually nicer neighborhoods and may present a lucrative opportunity, as scarcity dictates fewer homes available for rent in nicer areas command higher rent. Less competition too may prove to be advantageous, by contrast if demand for rental property in an area is low, your property may struggle to attract a tenant and thus sit vacant.
Families want to live in areas with good schools. Ideally you’d be buying a property in one of these areas to attract a steady flow of tenants. Areas need to shops, infrastructure like schools, transport etc are always the most popular.
Cost of Living and Weather
Areas with lower cost of living and but a more favorable climate are more likely to attract tenants. Also older folk like retirees want milder climates and affordable lifestyles. That’s why areas like Myrtle Beach, SC and Palm Beach, FL are popular spots for investors.
According to http://www.homeguidemyrtlebeach.com/, the cost of living in Myrtle Beach is 92.3, which is 7.7% less than the U.S. average. Temperatures average around 60 degrees in the winter, and the city gets about 200 days of sunshine each year. Statistics like these attract residents looking to escape expensive towns and cold winters. Areas prone to blizzards, hurricanes and tornadoes may be less attractive to renters.
Crime is another important factor. No one wants to live in a high-crime area, and the risks of property theft and other crimes are significantly higher if you invest in these areas. Crime data is readily available online. Consider reading through local forums to get an idea of the issues people face and the types of people that live in the area.
Along with the points listed above, you also want to consider whether there are HOA fees in specific neighborhoods you’re considering. In many cases, there’s a lot of red tape when dealing with an HOA, and rent restrictions may be imposed. Some HOAs even have the right to review the lease between you and the tenant.