What Parameters Make For a Good Rental Location?

Question

I am trying to learn what parameters make for a good rental location. I've spent years listening to BP and reading various books on real estate, but I cant recall anyone really diving in on the subject.

Basically, how do I know that an area will be good for a rental property?

John Warren · Answer

@Jaquetta Turner we weren't by the college at all, and this was a C class property. I think being in a smaller market is a lot harder than being in a primary market like Chicago. If you are in one of the top 10-15 markets, there are just so many more people. I invest in towns in Chicago that are almost the size of this sub market in Indiana. It is crazy.

John Warren · Answer

@Brandon Wine one of the things I look at is tenant demand. I used to own a 20 unit in a tertiary market. It was a college town and a very business friendly area, but we had low tenant demand. We constantly had vacancy and the units were harder to keep filled. Now I invest only here in the Chicago suburbs near where I live like Berwyn and Cicero. The tenant demand is off the chart. I am under contract on a 22 unit and I ran a tester add on zillow and apartments.com. In two days I had over 30 interested tenants reach out. This is what you want to see because it leads to low vacancy, low turnover and lots of profit!

Crystal Smith · Answer

We have a few criteria for a good rental property.

• Rental Days on Market- Is the demand high. How we measure tha are the days on market for similar rentals. We'd like to see units be on the market for  less than 14 days.
• Market Rent Value versus the purchase price - Does the area support a high enough rental value to justify the purchase price. In other words. Can I make my target ROI or COC
• Asset protection- Is the asset (our rental) located somewhere that's safe, or safe enough where the $ required to protect our asset isn't out of bounds
• Appreciation and/or purchase at the right price- We don't bet on appreciation for our cash flowing assets but we only buy at market price if we have enough data to support appreciation over time. Otherwise, we look for below-market/distressed; improve, reappraise then hold.
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Brandon Wine · Answer

Thank you all for the fantastic advice.

Paul De Luca · Answer

• @Brandon Wine
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• Strong employer base. Jobs bring people, and companies go where they can find customers and employees.
• Positive population growth trends
• Easy access to major roads, interstates, buses, trains, etc.
• Socio-economic trends of the neighborhood. What are the income levels? Is it mostly families? % renters and homeowners?
• Good schools, and low crime

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Moises R Cosme · Answer

@Brandon Wine 1. Built after 1940, 2. Within 4 blocks of local public schools.

Brandon Wine · Answer

@John Warren Thank you for you insight.

I live in an area 25 minutes outside of Dallas.

The area is growing very quickly.

In the last 3 years they have built hundreds if not a thousand homes and 3 large apartment complexes.

I am contemplating turning my current home into a rental and/or investing in my town.

As far as demand goes I believe there is a high demand for the area.

Its a low crime area with great schools and is close to a major city.

My concern is the amount of supply that is now available.

Do think that multifamily and single family compete with each other or would you consider them different markets?

Thanks again for the advice.

Ganessan P. · Answer

@Brandon Wine You can go to zillow rentals and put your potential property address and look for rentals available/vacancy around the property. If lot of properties are vacant and available for rental then it's not a good area for rental, and randomly select the vacant properties see a) How good is the property  at least in the photos, i know the virtual photos always don't speak for the reality b) How long this has been in the market. This would be some sense and also be specific to a particular location. Location really matters.

Jaquetta T Ragland · Answer

@John Warren do you think your 20 unit in the college town was hard to fill because no one wanted to live near college students or because the college students kept relocating?

What Parameters Make For a Good Rental Location?

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