Tips for Finding Affordable Properties with High Rent Potential?

Question

Hi everyone,

I’m new to real estate investing and I’m considering getting into long-term multifamily rentals. One thing I’m trying to figure out is how to find good locations where property prices are relatively low, but rental demand is high.

How do you identify these areas? Are there any key factors or metrics you look for when analyzing a neighborhood's potential? Also, what’s the best way to ensure the area is safe and desirable for tenants?

Appreciate any advice or insights from experienced landlords or investors!

Eric Gerakos · Answer

Keep in mind that inexpensive properties are inexpensive because they are less desirable properties in less desirable areas and attract less desirable tenants. Cheap properties look good on paper but rarely perform as well as more expensive properties. I always suggest buying fewer but better properties. Best of luck to you.

Bradley Buxton · Answer

@Mitchell Rosenberg

Another approach is the elimination method. Where will you not invest? If you live in CA investing in Alabama, OH, or TX might not make sense. Investing in AZ, NV, ID, where you have family or friends that is a day away and you can start to build a network and team to help manage a property.  The best properties are not always the lowest price but the ones that make the most money for your situation.

Greg Kasmer · Answer

@Mitchell Rosenberg  - I think the overall thinking is that most prefer areas that have a growing population with a growing/stable economy base that is diversified. There are some public sources (www.city-data.com) that can provide good baseline information. Once you're narrowed your market to a DMA you can also use some subscription services (i.e. CoStar) to understand the rental market (rent amounts, absorbtion rate, etc..) but that service is fairly expensive. There are other ways to determine rental amounts like researching in zillow and/or rentometer, which I typically reference. However, the best way to get a feel for rental rates compared to values is to review/underwrite properties in the area - only after reviewing/underwriting many will you begin to see a pattern. Good Luck!

John Friendas · Answer

These midwestern states have great cashflow at some of the cheapest prices. (Wisconsin, Indiana, Ohio, Michigian).

Pick a more rural town/city, they are typically very safe. Rent by the room/multifamily properties will give you cashflow, the tradeof is more management. These places can still appreciate and you can check each city's popuplation growth or decline on https://worldpopulationreview.com/.  On https://www.neighborhoodscout.com/ you can also check the neighborhood crime and the percentage of people who rent compared to owning. You will want to have an area with a higher % of renters. In addition to these you can find information about appreciation.

Many of the people recommending expensive properties are doing so because of appreciation. If you are just starting out, do not purchase properties that are expensive relative to you. Focus on cashflow and growth, earning money for more down payments on more properties. These types of properties can still appreciate an exceptional amount if you pick the right area. Later on in your investing journey the safety and low management of expensive, appreciating properties will become appealing.

Aris Christo · Answer

Count the gun shots on Saturday night

Gino Barbaro · Answer

@Mitchell Rosenberg

You can analyze median income of an area. Look into crime maps, and do the old fashioned thing of getting in a car and driving the market if it's not in your back yard. You'll get a feel for the age of the neighborhoods, the vitality of the commercial buildings, the ease of location, the closeness to jobs.

The markets you're describing are more linear, and usually have lower capital appreciation. There are many markets that fit this description. Midwest markets, tertiary markets, are ones I would look into

Good Luck

Gino

Min Zhang · Answer

Hey Mitchell, I recommend you checking out the Cleveland market. I personally love the Cleveland market for its cash flow. I invest heavily in this area as an agent. I grew up on the east side of the town with a well versed knowledge of the neighborhood. I am happy to send you my neighborhood grade map to help you get started. Let me know how I can help!

Robert Rixer · Answer

The market will naturally balance itself. "Good" areas will be priced high, "Bad" areas will be priced low. I think what you're really asking is how to identify good value areas where rents may be trending upward but the prices still remain relatively lower.

An important metric is tenant household income to rent ratio. Even if rents are trending up, if your tenant base can't make ends meet, the asset won't perform.

Tips for Finding Affordable Properties with High Rent Potential?

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