Whats the best way to determine rental demand in a neighborhood and also average vacancy?
Also, in some areas that i looked into, there are limited houses for sale but there are a lot rental available. Does that indicate there are way too many competition?
If there are a lot of rentals "available", then demand is low. Demand is high when there are close to zero listings and vacancies. Think of hotel occupancy, or airline seats. It also depends on your neighborhood.
Keep track of a dozen or so rental listings in the area you're interested in (save the ad URLs in a Word Document).
If they appear to be in nice shape and the price is fair and they're languishing on the market, there's likely a soft market in that area. And of course for every ad that disappears/is deleted it will show you which are rented.