Supply and Demand for Rentals

3 Replies

Hi Everyone!

My husband and I are new to REI and are getting into buy and holds at this point. I have a a pretty broad question about rental saturation in varying neighborhoods. We are trying to get a sense as to what various rents are depending on the properties and areas. Through our research (mainly on Craigslist), we are finding some areas have barely any rentals available while others have a plethora of rentals. My question is: on average, is it a better idea to buy in area where there are a lot of rentals already in place or an area where there are not many? My fear is some areas won't support people wanting to rent a home. On the other side of things, if there is already a big supply of rentals needed to filled then buying in an area like that would lead to more competition for renters. Any insight would be much appreciated. Again, I know this is a pretty broad question and every market is different, but just a sense would be great! Thanks in advance!

Stephanie

Rentals may not be available in that area because it is in a higher priced neighborhood that has only owner occupants. These neighborhoods have higher prices and may not make sense as an investment. 

I wouldnt worry too much about supply and demand. Focus on trying to buy houses at a good price relative to the rents. The minimum you should look at is houses that have monthly rental rates that are 1% of the purchase price. 

I have found rent-o-meter to be a useful tool.

@Stephanie Grady

So these are the scenarios that happen with the neighborhood you look at. If you buy in an area where there are not too many properties available for rent then you know its a competitive market and as a landlord you can charge almost anything you want and still get tenants.

However, if you are in a market where there are myriads of rentals available, it means that its not in demand and the landlords are competing to get tenants. With that scenario its a race to the bottom price wise to get tenants.

As result, you may not cash flow as much as you want and you will also have no choice but to rent to the dredges of society who will only bring down the quality of the neighborhood.

What I encourage you to do is look for properties in an upcoming area (meaning there are signs of development going on, whether its a new hospital, university, shopping mall etc.) then buy it when prices are comfortably low.

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