How to Evaluate a Market Before Buying Your First Rental Property
Entering the rental market requires significant due diligence before buying a property. Carrying out extensive real estate market evaluation before parting with any cash is key to success—and can also make a very real difference to the level of profit you achieve.
The depth of online research available has simplified this task somewhat. However, the internet is a deep and misleading platform. Knowing exactly what you should be looking for and how to get accurate data is imperative to ensure long-term real estate rental success.
Real Estate Market Evaluation: Everything You Need to Know
- Market research for investors
- How to determine the best cities for rental properties
Market research for investors
Great research comprises multiple elements. However, rather than feeling overwhelmed by a bewildering number of considerations, it helps to divide these into three main categories. These are:
- The location
- The rental potential
- Income vs. outgoings
Looking at the location first, there are three main aspects to evaluate.
Rental demand: Check out current rental listings and statistics. Is there a glut of empty properties or does the area have high occupancy rates? How long do new rentals stay on the market? Use multiple sources to find this information and take the median numbers for the most accurate comparison.
Livability: Consider the infrastructure (and any planned improvements), amenities, public transport links, and everything else that makes an area desirable. What is employment like in the area? Are there good schools and leisure facilities? How about crime rates and police statistics?
Market potential: Look at the average property appreciation—and be sure to consider upcoming projects that might affect this. For example, a large blue-chip company moving into the area is likely to positively impact employment opportunities. Is there large-scale infrastructure and development planned or anything else that might see real estate increase in both the rental and sales markets?
The rental potential consists of cold hard facts and figures, namely the:
Average rental costs: This allows you to estimate the annual income you might draw from a property. Be sure to account for potential losses due to the property standing empty, perhaps while you wait for the first tenant or between tenancies.
Last, but certainly not least, consider the rental income vs. the outgoings. This should include any borrowings to finance the purchase, as well as all the ongoing charges to run and maintain the property. These include (but aren’t limited to):
- Property management fees.
- Ongoing repairs and refurbishment.
- Insurance.
- Taxes.
Be sure to factor in all the initial costs over and above the purchase. Most rental properties require at least a little spending to bring them up to statutory standards. If you’re following the BRRRR route (buy, refurbish, rent, refinance, repeat) then you’ll need to accurately calculate the costs it will take to bring the property to a marketable state, as well as analyze the potential rental income.
How to determine the best cities for rental properties
Deciding where to buy should be driven by facts, as opposed to the location. Unless you’re looking to be, quite literally, a hands-on landlord, then it’s highly likely that your property will be in the hands of a property management firm. That way, you can pick and choose the location according to profitability potential, rather than convenience.
When determining the best cities for rental properties, consider the:
- Median rental price.
- Average rent-to-income ratios.
- Amenities.
- Employment.
- Schooling.
- Real estate appreciation.
- Population growth.
- Housing demand.
You should also factor neighborhoods into the equation. Buying in the “right” area of town can have a dramatic impact on the rental potential of a property. You should also consider whether you’re in it for short or long-term gain. While investing in rental real estate tends to go hand-in-hand with longer financial planning, all the above aspects will have an impact on where you might consider buying.
Last, but not least, take full advantage of the many free and paid-for data analysis tools available. Some of the best-known and reliable sources include:
- Zillow
- AirDNA
- DealCheck
- Rentometer
Done Your Real Estate Market Evaluation and Ready to Finance Your Investment? Contact BRRRR Today
BRRRR is fast becoming the go-to financier for real estate investors in the know. With incredible competitive rates and some of the shortest close times in the industry, we provide funding to both first-time rental investors and those with a suite of properties under their belt.
Discover more at https://www.brrrr.com/ and call today for a confidential discussion.
Buy, Rehab, Rent, Refinance, & Repeat. A nationwide direct lender to real estate investors. If you have a project that needs to be funded, you’ve come to the right place.