The Landlord Files: Location is Key!

A lot of people want to get into the real estate game, and some actually do.  Of those that actually do, I am always amazed at the sheer volume of investors that  have set their sights on sites located in their own city.  While that maybe a great idea for some, it is a terrible plan for others.  If you live in a city where purchase prices are high, you might not really make enough on monthly rent to make it worthwhile as an investment.

That is why I suggest, expanding your search to include cities that are NOT your own.  While, being a landlord in your own city may make it easier for you to be "hands on," is that really what you want?  Personally, I am in favor of using a management company.  That being said, the property does NOT need to be in the city I live.

So, what are you looking for in choosing a city to buy rental property?

1. Find a city with a low purchase price and a high rental price.

     Start looking at various cities on the internet.  Some real estate search engines will actually tell you how much like properties rent for in the high-medium-low price ranges.  Alternately, search for properties for sale, then follow it up with a search for rentals with similar attributes in similar areas/zipcodes.  Once you get really serious, there are several calculations you will want to make, but let's assume for now, you are just zeroing in on cities of interest as far as investing is concerned.  After you've completed this step, go on to the next steps if it is a city you are actually interested in.

     2.  What is the unemployment rate of the city you are investigating?

     

     This is really important information.  It gives you an idea about the economy in a place you may have never lived.  Just to give yourself a clearer idea, compare the unemployment rate there to cities you know or have lived in.  This should give you an idea of what you are looking at.  Use government websites and filter for the current year for the most accurate data.  Remember, unemployment rates are skewed because it considers you "employed" if you work even 1 hour a week (which you could never actually live on) and doesn't count the disgruntled folks that have more or less given up on their job search.

     3.    What is the average income in the city you are investigating?  

     

     Again, consider comparing this information to that of a city you know.  This will also help shape your idea of the local economy. This information is usually available on government websites which also tell you about unemployment rates.

    4.  Research foreclosure rates.

     By doing so, you might get an idea how the city is bouncing back from the recession.  You don't want to invest in a situation where there are blocks upon blocks filled with empty, vandalized houses and one or two houses with people living in them.  That is a recipe for disaster.  You may be able to get this data from state or local bureaus in statistical form, but I also recommend looking for local news articles to get "the real story" about what's going on in that realm.

     5.   Research rental vacancy rates vs. occupancy rates.

   Ideally, you want to know if places in this city sit unoccupied for long periods of time, or if a ton of people are constantly looking for rentals.  Real estate companies and news articles are sometimes good sources for this information.

Once you've done this sort of research, I recommend setting some automatic alerts on your favorite real estate search sites so that you can keep an eye on the market in your chosen location while you make your plans to move in on it!