As part of the upswing in the US housing market, rental rates are hot in most areas of the country, with a growing pool of renters made up of former homeowners, young professionals, and those who are unable to qualify for a home purchase. For investors following Jason Hartman’s advice on maximizing returns through diversifying investments in different markets, options abound. But what are the markers of a good rental market?
As Jason Hartman points out, all real estate is local. Any property exists in relation to the larger context of the neighborhood, the city, and the state where it’s located, and its viability as an income producing property depends on factors on all those levels. These factors determine issues including the pool of potential tenants, the maximum rent to charge, and even limitations on property maintenance and upgrades. So a good market will depend on the interplay among all those variables.
Generally speaking, though, desirable markets feature a diverse employment profile, with numerous companies and institutions providing jobs that keep tenants able to pay rents. If an area must depend on only one employer, when that employer leaves or crashes, the employees depart too, leaving behind vacant houses and empty schools. Employers and institutions that attract renters, as opposed to buyers, are also a plus – places such as colleges, businesses hiring younger professionals, and large technology firms.
Those renters – the long-term employed individuals who can’t, or don’t choose to buy homes – are likely to be able to consistently pay rent and keep the property reasonably well maintained. Renters of single family homes tend to actually be families, perhaps former homeowners themselves, who are looking for a long-term rental in areas with community ties to schools and other services. To attract those kinds of renters, it can help to choose properties near a school or other institutions offering services a family might need.
Another factor to consider is the overall economic profile of the city and even the state where the property is located. Ongoing development in key areas such as commerce and housing, suggest a belief in future growth. Likewise if the state where the property is located suffers a downturn due to natural or economic factors, the likelihood of finding a relatively large pool of desirable tenants shrinks.
On the city and state levels, the laws and practices that govern use of land, the impact of planned improvements and allowable changes to the property can be a tip off to problems with the property in the future. The strictness of business zoning and limitations on alterations to the structures can severely limit options for upgrading or even maintaining the property.
Subject to the vagaries of local life, markets outside your general area can be worth investigating. With an eye toward the future and a clear look at present circumstances, each investor can decide if a particular market area is right for them. All real estate really is local, and understanding just how that local market works can be the first step toward choosing the right rentals for you. (Top image: Flickr/squirrelradio)
The Jason Hartman Team
