Discovering the most suitable markets to invest in as an established investor is one essential recipe for success in this business.
That said, what are the defining characteristics of a market that is or would be regarded as part of the best? Below, we discuss four tips for a successful real estate investment venture, particularly for stakeholders who might be interested in rental properties or the buy-and-hold concept.
1. Check for properties with 1% RTV ratios.
Smart investors utilise the rent-to-value ratio (RTV) concept when determining the viability of investing in a given property. For instance, a $200,000 property that rents for $2,000 a month has a 1 percent RTV. The implication? It’s considered a viable investment.
However, that a property or neighbourhood under class A and B falls below the recommended 1 percent RTV doesn’t necessarily make them (the properties) bad choices. Nonetheless, if the RTV goes below 0.9 percent, chances are you won’t be getting the best value for your investment. If you aim at maximising profit, stick to the 1% RTV.
2. Rental demand level is crucial
Major cities aren’t the only places you can find a massive percentage of renters. Smaller regions, especially those connecting the big cities, are likely to have an impressive percentage of renters as well. Take the Midwest markets of Middletown, Ohio and Dayton, Ohio, for instance; the renting population percentage is an estimated 40-50%. This is an indicator of a successful buy-and-hold strategy.
For small areas, the renting population percentage fares better at 50 percent. Anything less could mean difficulty; difficulty in attracting renters due to price point, location, and other reasons. In other words, set your sights on markets with roughly 35-65% renting population. If the renting population goes over 70%, that’s not a good sign either as it implies that the area doesn’t attract prospective homeowners.
3. A Diversified Economy is Key
Don’t just assess the property’s viability as an investment, evaluate the market as well. Find out what and who drives the industries there. Does the city or area attract businesses? If yes, what kind? Are there potentials for expansion? You’ll want to ensure that boxes such as long-term support in the area for future growth and employment are ticked.
Does the market you’re interested in rely heavily on tourism or heavy-duty manufacturing? What if AIs took over the industries and a natural disaster occurred to halt tourism? For longer-term stability and the potential to attract younger professionals, opt for a market whose economy is diversified.
4. Don’t be location-static, be location-smart
Perhaps sticking with the old parlance “invest within an hour drive from home,” one mistake, I’ve seen investors make time and again is limit the scope of their investments to their neighbourhood and surrounds. Before the internet boom, that adage might have held sway, but not in this day and time, not anymore.
With the emergence of investment companies, the prospect of investing in markets away from your personal surroundings is a reality. These go-to specialists are adept at discovering remarkable rental properties, rehabilitating them to specific standards, finding responsible tenants, and arranging a property management framework for investors living in any location. So, you just need to look at where the real estate investment boom is. With a lot of people moving to Australia, Canada, Malaysia, Puerto Rico, Spain, Singapore, etc, there are huge investment opportunities in these countries that you can take advantage of from anywhere you currently live.
Remember, “Live wherever you desire and invest in smart locations.” If you limit your search to the confines of your local market, you'll likely be missing out on the next big thing in real estate investment