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Experts in real estate will always advise you that you should buy an investment property that will generate a good return on investment. Of course, you must consider several factors when searching for the property that will bring you good fortune. One of these factors is an area where there is a high demand for rental properties.
The more people look for a house to rent in a certain location, the more you can make money for your investment. Once you purchase an investment in a market with a high rental demand, it is an advantage because you can charge a competitive rental rate, and there is a low risk of vacancy.
For sure, that is an enticing factor to consider. Now, let us explore the ways to determine if a location has a high rental demand that can benefit your investment.
Demographics
Check the demographics or data on population growth, employment opportunities, migration trends, age, gender, and disposable income of people living in the area. The demographics of a real estate market can give you an understanding of the general and specific demand for rental properties.
Experts say a housing market with older folks prefers smaller, one-story rental homes. Meanwhile, millennials are more likely to go for single-family rental properties since most of them are getting married and having families.
The number of renters compared with homeowners in the area is also a crucial consideration. There is higher rental demand if the location has more than 50% of residential tenants.
Number of Rental Listings
Another thing you must check is the number of rental listings in the area. Consider those occupied and vacant rental listings since they help you determine rental demand in a given location.
A location with too many available rental units compared with occupied units can mean that it is a highly competitive market. Since there are high vacancy rates, landlords will reduce their rental prices to draw potential tenants. Thus, choose an area where there is a high number of occupied rental units because this shows that rental activities are strong.
Price-to-Rent Ratio
Another way to determine the rental demand by state or city is to check its price-to-rent ratio. This benchmark allows you to know the average price of properties and the annual rent in a given location. It, in turn, suggests which is more affordable - to own a home or to rent.
When the price-to-rent ratio is high, it means that it is expensive to buy a home in the area. Therefore, it is likely that the population there are mostly renters. It will be an attractive location to invest because the demand for rental properties in it will be higher.
Employment Opportunities
Young adults will flock to a location where the economy and the job market are good. This relocation can only mean that they need homes to stay. As the influx of people looking for employment opportunities in the area increases, there will also be a high demand for rental housing.
Planned Development Projects
Scour for information regarding the future development in the area. The planned projects by a city make the location more attractive to prospective renters searching for greener pastures. New schools, new hospitals, and infrastructure improvements can entice people to relocate and thus increase the demand for rental housing.
As a real estate property investor, you should be forward-thinking. The fact that the property you will buy and rent out will be there for years is a big reason you should look to the future.
Mortgage Rates
Consider the trend in mortgage rates when determining the rental demand in a specific location. Areas with high mortgage interest rates also generally have a high demand for rental housing. The reason for this is they do not want to purchase a home because it will be costly in the long run.
Fluctuations in mortgage rates may vary by state or city because of different market trends and foreclosure laws. In 2022, there is a significant boost in mortgage rates across the United States market. However, this reality has a different impact on various localities.
Tourist Activities
Consider the tourism factor in the area where you invest, especially if you are planning to run an Airbnb rental property. Short-term rentals have higher chances of success if they are located in a city with high tourist activities. Check if the area has natural parks, beaches, historic sites, and other tourist attractions.
Takeaway
Be mindful of those factors mentioned in this article when determining the rental demand of a location where you want to invest. As a would-be property investor, consider looking at the demographics, number of rental listings, price-to-rent ratio, job opportunities, planned development projects, and tourist activities in the area to see if it has high rental demand.
