Will my property rent?

18 Replies

How do you all determine whether a property will rent?

I am currently analyzing many different markets and do not have a specific one set for myself. I am looking at comparable rental rates and purchase prices in each of these markets. I notice that some markets are overwhelmed with large apartment complexes with pools, gyms, etc. Do you see these properties as more desirable to potential tenants when compared with the SFH or MFH I would try to rent in that area? These complexes are appealing to the eye (mine at least). I do not know if a house would rent in these areas without severely undercutting the rents of these competitors. Of course not everybody wants to live in a big complex, and some would prefer renting a house. But how do you determine these things...

What do you all think? Avoid investing in small rentals in areas where many large complexes exist?

Living in an apartment complex is the absolute last thing I will ever do, as a serious last resort - and I live in a town where there are at least 30 pretty nice (and HUGE) apartment complexes under construction right now.

Many families don't want to live in apartments.  Anybody with toys (motorcycles, ATV's, boats) is going to want a garage or a shed.  Apartment buildings have limited private garages.

So... yes, SFR's will rent in apartment towns, and they will rent at market rate. BUT, just like every other deal, you've got to do it the right way and cater to the population that will live in that area.

@Eric Telese It's doubtful the same tenant pool is going to be ambivalent on a house vs. large-scale apartment complex.  You generally either want one or the other.  The biggest challenge is a large complex vs. small 5-8 unit building.  Basically, the kind with no amenities like a pool, clubhouse, etc.  Odds are you can't compete on price but are they in similar locations?  Not to mention that some people don't want to be on a 3rd floor walkup in a large complex.  So there are a bunch of reasons why those might not be for everybody.  But you're right, apples to apples, if the two are across the street from each other it's hard to compete when it's the same price.  My advice, however, is to take your "feelings" out of it.  Pretend you're a renter, go search on Craigslist, Zillow, etc. for apartments, homes, etc. in the area.  See what's listed for rent at each price tier.  You can see how long the ads have been up (especially in the sites with price history) and it's not that hard to deduce if you have to undercut by $50 or $150 to be competitive in the market.

If you want to pick a good area, stick to where the schools are and go with SFH's. If you want to do MF, then you might have to watch some of those things like big complexes because they would be your competition.

But when it comes to SFH's and good schools, I just don't see apt complexes as big competition. I view apt complexes as 1 or maybe 2 bedroom units for young couples and/or singles.

But when they start having kids, they need to be where the schools are and they're going to want a bedroom for each kid. That means SFH's.

To me, thats what I would focus on. If you're in a decent school district, a 3+ bedroom house is going to rent. 

@Andrew Johnson That is very true. Most people probably really want one or the other. I'm sure both can thrive in the same area both having their own pros and cons.

I have recently been opening up separate tabs on realtor, one for buying, one for renting, one for the amounts of properties for sale and for rent. There are some markets that have a ton of properties for rent and some that don't have very many at all.

That leads me to my next question: Should I be weary if a market has SO many properties listed for rent? Lots of competition. Maybe many of them sit vacant for a while? The demand in that market for rentals is lacking (would have to further confirm this through market analysis)? etc. Or hey, maybe the demand in that market is awesome and these spots are being filled quickly and new ones listed so often. 

On the other hand, I wouldn't want to buy into a market with SO few rentals listed. Seems like the houses are much cheaper in these areas and I could buy in for very low money down, but is everyone living here just buying? Should I worry no one wants to rent here because of housing prices. Would i be the only rental in the area, therefore just sitting vacant? Or would I be the only rental in the area and maybe be able to fill up very quickly?

@Mike H. Great point. I haven't really made my distinction of SFH or MFH. I thought that I could look at both after deciding on my market. But, I think you proved I need to specify which I want to invest in.

I used to think I wanted only MFH, but recently have been leaning towards SFH, the sustainability seems better through targeting families who will probably not move as often as singles, couples changing jobs, etc.

I like to go on Trulia and search for SFH rentals in an area. I do the same for Craigslist. This gives me an idea of what others are asking for similar properties. If an area I like has a lot of available rentals I then see if my numbers work as lower price.

@Eric Telese Eh, for me there's a cart-before-the-horse issue there.  Local market dynamics are funky.  Some thrive on Craigslist and others don't.  Why?  I have no clue.  Even VRBO and AirBnb vasicallate in popularity from marketing to market.  But there's always a market for renters.  Now is there is a rent ceiling?  Sure.  Where I invest would I buy a home where I needed to rent it out for $2,500?  Heck no, it's just not really viable in that market.  It's too narrow a niche.  Odds are I could find a renter (for the nice property) but at turnover I'm probably going to be looking for a while to find the next tenant.  It's not too hard to look and find the "sweet spot" of where there are a solid amount of listings.  

I think the first step is to figure out if the market is right for you.  I'd rather buy in a market with a lot of owners (if that way the reason there were fewer renters) than a rural part of West Texas where a lack of listings might have more to do with a lack of industry, lack of population, lack of growth, etc.    

I would suggest finding a desirable school district and purchase only 2+ bedrooms. That sets you up to have a large pool of people wanting to rent your property. Furthermore, if there are large communities in some of your target areas, look further into them. How many units are 1,2,3 BR? Look at the city's demographics, is there a lot of families? 

Maybe you can find an area where the large communities are mostly 1 BR and not accommodating to families, or vice versa.

@Grant Rothenburger @Mike H. @Andrew Johnson thank you for your input. 

How do you all decide what exactly is the “best market for you”? Im investing out of state therefore have to chose from literally anything.. Where do I even start, schools are probably most important? Along with pop growth, job growth, unemployment rates, etc...

Any additional tools or advice to help me get going is appreciated!

@Eric Telese The three main factors to consider when looking at a market (for buy and hold) are job diversity, population growth, and supply and demand. Schools would fall right after those three, if you find a favorable market for those, then look at the sub-markets for schools. I can explain what to look for with job diversity, population growth, and supply and demand if that would be helpful. Didn't want to throw too much at you lol.

@Eric Telese Eric, I think the best thing you'd want to do first is to pick a handful of markets, perhaps 3, then pick a specific asset class (SFH Or MFH). 

That way, you can be laser-focused and pick up on trends in the market. I suspect the reason you are unsure if your property would rent is that you are overwhelmed with analyzing some many different properties in several markets and shifting back and forth from one asset class to the other.

Hope this helps, Eric. Goodluck. Thanks! - Ola

@Grant Rothenburger What sources do you find useful in analyzing job diversity, pop growth, and supply/demand (of rental properties?).. 

Originally posted by @Eric Telese :

@Grant Rothenburger What sources do you find useful in analyzing job diversity, pop growth, and supply/demand (of rental properties?).. 

 Mostly Census Bureau and brokers/agents.

@Eric Telese When I was looking at “where” I basically looked at places I had lived, family was, where I had friends I trusted, and added a couple of markets (like Texas and Florida) that had no state income tax.  At the end of the day I chose a market where I had extended family, low property tax rates, low “dirt” value, but also chose commerical multi family so I could “force” apprecation.  So while I like owning apartments there, I don’t know that I’d have invested there if I wanted to buy SFRs.

@Andrew Johnson definitely makes sense. Just read that advice in @David Greene new book Long-Distance Real Estate Investing.. Think of where you have friends/family. 

I have a very close friend who just moved to San Jose, CA, and is in their police academy. I know CA is expensive but wanted to see what they had around there. So did a property search for that area. Cheapest place is a shack for 550k! Pretty funny,

So I have some cousins in Ocala, Florida and sister in Durham area of NC which I will look at next. See if they can offer me any insight on their areas.

I think I will probably end up in a place with no ties though!

How to pick a market is really about a series of factors that you have to weigh based on your own gut as to which ones you think are more important and you have to do a little projecting on what you think would be an area you could do well in. But as some of the earlier posters mention, you really have to pick SFH or MFH when comparing markets first. Thats a decision you have to get to sooner rather than later before you even consider marekts.

If I were you and you decide on SFH, I would probably try to pull out a handful of markets that people on BP tend to recommend. If I had to pick 5 or 6 places that I think I see the most positive responses on in here I would guess the following: Dallas, Houston, Indy, Cinci, Cleveland, and maybe Milwaukee?

Then create a checklist for each one of what you think would make a good rental area.
1) Price/rent ratio?
2) Historical Appreciation.
3) Job growth
4) Landlord laws

Then weigh each one based on what you believe projects out the best and maybe even were you'd like to visit. Once you pick your market, I'd find the areas that have decent school districts and would start targeting those.

Again, BP just had a great podcast not too far back where the guest had just written a book on putting teams together for out of state investing. He was crushing it too. Get the book and see if that helps as well.

Ultimately, I don't know that there is such a thing as having to pick the absolute "best" market to invest in. Thats like asking was Michael Jordan the best player ever. Does it matter? Top 5, top 10. Point is he was a great player. I think you can pick any of those markets above and do well - provided you do it right.....

Eric, I am in Ocala and SFH's are easy to rent. Try checking Facebook's Ocala for rent or sale or Ocala rental pages where people are lined up looking for houses. I prefer a 3 bedroom as it's the easiest to rent and avoid 4 bedrooms as I was burned on renting to a huge family.

marelyn,  do you use property management? I have vetted 8 and have narrowed my search.  Thanks for the 3bed vs 4 recommendation. 

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