How to Decide Where to Buy Rental Property

Rose Morrison

May 12, 2021

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Investing in real estate has long been considered one of the safest ways to use your money. Even if a rental sits empty for a short period, the structure still gains equity for a future time when you’ll sell it. 

About 42% of the renters in America live in single-family homes (SFH). Buying a house in your area is one of the easiest ways to get into the real estate market, although you can also purchase multifamily units and apartment buildings.

Diving into life as a landlord requires some specific steps. You must know where to buy rental property and why you’ve chosen a specific location. Here’s some advice to get you started:

1. Choose the Type of Housing

Before you look for your first property, make some decisions on the type of housing you’d like to purchase. For example, do you want to live in the house and enlist other tenants to pay the mortgage, otherwise known as house hacking? You might want to purchase mobile homes, rent an SFH, or buy an apartment building.

Once you know the type of housing you’d like to invest in, it becomes easier to narrow down the location. If you want to live in a home and rent out rooms, a spot near a college campus is a good option for student renters. On the other hand, if you want to live in an apartment and lease the other units, a location close to office buildings or hospitals attracts young professionals. 

2. Look for Lack of Options

Your next step is to seek a neighborhood where there aren’t a lot of other rentals. If there is a lack of options, your place will likely lease much more quickly and possibly for more money. Notice how long listings stay on the market when they do go up. If you’re unsure about demand, talk to a local property manager or real estate agent.

3. Seek Rising Rent

Find a neighborhood where rent increases occur regularly. Ideally, you want to raise the rent every year or two to keep up with market value. You’ll find some areas have regular rent increases while others stay static. Search through past listings on rental sites and hunt for info on particular addresses near where you’re thinking of buying. 

The median cost for renting a one-bedroom apartment is $1,220. Some cities garner higher rent than others. For example, in New York City, the cost of rent for the same size apartment is $2,840.

4. Search for Signs of Nearby Renovation

Buy a house in an area that’s undergoing renovations. Revitalization makes a place more desirable. If you notice a lot of old buildings redone into condos, rehabbed homes, and upscale stores coming to a location, you will likely be able to buy low, renovate, and rent high.

Many younger people flock to urban hotspots. Older neighborhoods have become hubs of activity as people buy homes, fix them up, and rent or flip them. Drive around nearby cities and look for places where numerous projects are occurring at one time. 

5. Know the Resale Value

Look at the average rate of increase in equity in the area. If you rent the house for several years and need to sell it, will you make capital gains? You certainly don’t want to lose money or stay stagnant. There are many reasons you might need to cash in on a rental investment. 

Ideally, you want to buy in a place just starting to come to life. The equity in your investment builds quickly, and you can then profit from the increase. 

Factor in Current and Future Trends

When choosing where to buy a rental property, consider both current and future market growth. You might not be able to purchase a residence in your dream neighborhood on your first try, but can you make enough off the house to invest in another — and another? Crunch the numbers, talk to experts in the field, and make the best choice possible.

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