7 Mission-Critical Things to Consider When Choosing a Real Estate Market
Did you know that the U.S real estate market grew by 5.2% in pending home sales in 2020? This means more people are investing in real estate than ever before.
However, if you’re a first-time buyer or renter, then there are some things you may not know about the real estate market. So keep reading this article, so you can get the best out of your rental agreement!
1. You Need to Find the Right City
The very first step for getting into real estate investing is to find a good city. But what does this mean in terms of investing in real estate? Well for starters, a good city will have the following:
- Excellent schools
- Good job market
- Low commute times
- Low crime rates
These are only some of the factors that consumers look for when choosing to rent or buy a home. So as an investor, you need to take these factors into consideration as well. Doing so will allow you to have competitive rates on your property because there will be higher demands in these high-traffic areas.
2. Study the Neighborhoods Within Your Preferred City
A good real estate investor will also do thorough research on the markets within a whole city. And this can be difficult and take some time! So you’ll need to be patient, especially since the market does fluctuate greatly.
Many times you’ll hear the words “prime real estate location”. And this simply means the neighborhood is selling homes at a competitive rate. Therefore, this is the neighborhood you’ll want to invest in real estate.
When looking at neighborhoods, consider these factors:
- The number of days homes sit on the market
- If the neighborhood has an HOA
- Any zoning or building restrictions
- Possible issues with neighbors
Once you find the perfect city and neighborhood to invest in, then it’s time to start looking at listings. However, this part comes with its own set of rules.
3. Rent or Buy
The property market can be hard to gauge when it comes to renting versus buying. However, a good rule of thumb for prospective landlords is to take the average property price and divide it by its average annual rent.
This simple equation will give you the configurations for the price to rent a home. In other words, you’ll know whether renting or buying is more economical.
4. Look at the Tenant Laws in Your Prospective State
Investing in real estate and becoming a landlord has its own laws. So before making a big decision, consider the landlord laws in your state. For example, the laws on evictions, lease agreements, deposits, etc., all vary depending on the state you live in.
A good way to avoid future complications is to invest in a state that has land-lord-friendly laws. For example, consider states that don’t have rent control laws or faulty eviction notice guidelines. Overall, you want to invest in a state where both you and your tenants will be protected by the laws set in place.
5. Study Airbnb Laws
Just like a tenant would look at rental agreement laws, you must study Airbnb laws if that’s the route you’re choosing to take. These laws are different than the traditional tenant and leasing laws, and they vary by state.
For example, there are some major cities in the US that have started banning rentals that are not occupied by at least one owner. In other words, investors cannot buy a property for the sole purpose of turning it into an Airbnb.
So take these laws into consideration if this is your plan. Currently, these are some of the cities that have not been affected by any laws on Airbnb properties:
- San Antonio
There are also more cities on this list. However, these are cities that have high foot traffic all year round.
6. Traditional or Airbnb Route
It’s important that you pick a city that has a good reputation with Airbnb and rental properties. So here are some factors to consider when looking at different markets to invest in:
- Airbnb daily rates
- Average occupancy rates per Airbnb
- Rental income for Airbnb owners
- Rental income for traditional rental owners
- Traditional cap rates
- Airbnb cap rates
Whether you’re turning the rental property into a five-star Airbnb stay or traditional leasing property, these factors will need to be considered. However, be aware that the market data will be very general in terms of capital per a general area.
So you may see lower numbers when you look at the data as a whole, versus just one investment property. For example, the average cap rate for a rental property is about 8 to 12 percent.
But when looking at cities with promising markets, you’ll see cap rates starting at about 2 to 3 percent. So keep these fluctuations in mind when looking at high traffic areas.
7. Increase in Property Value
Renting a property to tenants is a very fast cash business. However, you also want to consider your long-term goals. More specifically, you want to make sure your rental property will gain value over time.
Of course, your property can gain value from simple repairs and cosmetic changes. However, the location of your property will play the biggest role.
So invest in an area that has high real estate preference rates. This means choosing an area that has an evolving market, high tourist rates, and a good job market.
The Real Estate Market Made Easy
Knowing the real estate market is only half the battle when investing in real estate. So remember to always stay informed on the laws and markets surrounding your area.
You can also check out the rest of our blog to learn more about other real estate topics!