When learning about buying rental property, real estate investors are always told to invest in the best rental markets. But what exactly classifies as the “best rental markets”? More or less, there are eight characteristics an investment location would need to have to be considered among the best. These characteristics are:
- Positive Cash Flow
- High Real Estate Appreciation
- Strong Economy
- Nearby Amenities
- Airbnb Regulations
- Low Crime Rate
- High Demand for Rental Properties
Positive Cash Flow
The primary purpose of all real estate rentals is to generate rental income. This, however, does not necessarily translate to profitability. Profitability is when the difference between rental income and rental expenses is positive. In other words, rental income profitability is having positive cash flow. While the generation of positive cash flow and return on investment is largely due to the characteristics of the rental property itself, a property’s investment location also plays a role. Rental investment markets need to support the generation of positive cash flow. They can do so through some of the following characteristics like high demand for rental properties, for example.
High Real Estate Appreciation
Positive cash flow is not the only form of profitability the best rental markets have. The best rental property markets also make investment properties profitable in terms of property value. This increase in property value over time is called real estate appreciation. According to Zillow, US investment properties appreciated by 5.2% over the past year, with an expected 2.2% in the present year. A common theme in the best rental markets in the US is high appreciation. These rates can range widely, but overall, the benefit of appreciation is relative to the investment location. With increased home values, real estate investors can sell their real estate rentals at higher prices.
Different rental strategies have different features that need to be considered when looking for the best rental markets. Traditional investment properties, for instance, strongly benefit from being in a location with a strong economy. There are many ways in which a thriving economy propels some of the best rental markets for investors. When a location undergoes developments, such as construction or the opening of new businesses, new residents, and thus potential tenants, move into the area. Investors can always learn of a real estate market’s economy by visiting the US Bureau of Labor Statistics website. A successful economy also contributes to increases in appreciation, especially if the income property is near traditional rental amenities.
Proximity to Traditional Rental Amenities
Speaking of traditional rental amenities, what exactly are they? These are anything that enhances the allure, demand, and profitability of real estate investment properties. Examples include schools, colleges and universities, grocery stores, restaurants, parks, and many other conveniences and necessities. The best places to buy rental property are also near a variety of amenities.
Based on an investment property’s location, real estate investors can adjust their rental property and strategy to a specific niche. If a property is in a college town, for instance, a real estate investor can use an investment property as a college student rental.
If you’re interested in the best rental markets for Airbnb properties, then there are many characteristics of the best vacation rental markets that you need to keep in mind. The most significant of these features is the area’s tourism. Every city’s tourism is unique and offers much to specific tourists. Young families would be interested in amusement parks, college students on Spring break want to visit beaches, and sports fans will definitely come to watch championship events. As an Airbnb host, you should find out what makes your area’s tourism successful and tailor your rental property to that aspect.
We’ve mentioned tourism, but the best rental markets for Airbnb require an even more important characteristic. This feature, of course, is legality. Even if an area is rich in tourist opportunities, renting out Airbnb rentals would be detrimental if short-term rentals are outlawed in the area. Airbnb regulations vary from city to city, but there are common laws that real estate investors must abide by. These typically include hotel occupancy or transient taxes, permits, and zoning requirements. As an investor, you should also be aware of any present and developing short-term rental legislation. Here are Airbnb regulations in popular cities in the US, according to Airbnb itself.
Low Crime Rate
Another quality of the best markets to buy rental property follows an old saying: “safety first.” Regardless of investment strategy, real estate investors need to make sure that their investment location of choice is safe. Just as an investor wouldn’t want to buy a rental property in a crime-ridden area, a traditional tenant or Airbnb guest wouldn’t want to live or visit such a location either.
High Demand for Rental Properties
There’s no doubt in any investor’s mind: The best place to invest in real estate must garner high demand. All seven of the previously mentioned characteristics add to the demand of the best rental markets. However, there are other factors that must be taken into account. Occupancy rates of the market, for instance, will significantly impact the demand for a property. The optimal rental strategy of the market will also play a role in tenants’ demand for rental property. A general guideline, however, is that anything that benefits a tenant and a real estate investor will be found in the best rental markets.
How to Find the Best Rental Markets
Throughout this blog, we’ve helped you identify the best rental markets. But you might be thinking of another issue, which is how to find the best rental markets. Here’s the short answer: By using a heatmap analysis tool. With this tool, investors can conduct a real estate market analysis. This will analyze the investor’s market of choice and it will also determine where to buy an investment property in the area based on real estate metrics like the cap rate, cash on cash return, rental income, and more. Wondering where you can get your hands on such a tool? Look no further! With Mashvisor’s Heatmap Analysis Tool, you can analyze all the best rental markets across the US! To get started, click here to begin your 14-day FREE trial with Mashvisor!