If real estate investing was easy, everyone would be doing it. The truth is, no matter how hard you work on your investment property, there are certain factors driving the real estate market that you simply can’t control. These factors will affect everything from housing prices, to the optimal rental strategy, to your potential return on investment. To become a successful real estate investor, you need to be aware of these factors to evaluate how your real estate market is doing and determine whether or not buying an investment property is a smart decision. Here are 4 of these factors:
Factor #1: Demographics
While demographic factors (such as age, race, gender, and median income) are often overlooked, they’re actually significant to property investors. Such factors will help you anticipate real estate market trends which, in turn, will influence your investment decision. For example, knowing that a certain area is home to aging baby boomers and retirees or is attractive to young millennials starting families and building their careers will give you a better understanding of your prospective buyers/renters. This will also affect the best type of rental property to invest in and what to look for in an investment property.
Related: What Is the Best Type of Investment Property in the Real Estate Market?
Demographic factors also have a tendency to affect the housing market in terms of demand. Property investors should be aware of whether the population is increasing or shrinking. Simply ask yourself: Are people moving into or out of the city? If you’re a real estate investor depending on rental income, this is a crucial factor to take into account. Investing in an area with a growing population means a larger pool of potential tenants and higher traditional rental and Airbnb occupancy rates. Moreover, when the demand in a real estate market increases, so will home prices and rental rates. As a result, you can charge tenants of your rental properties higher rents and make a good return on investment!
You can estimate your potential return on investment using our investment property calculator! To start looking for and analyzing rental properties in your city and neighborhood of choice, click here.
Factor #2: Economic Conditions
There’s a positively correlated relationship between the economy and the real estate market – when one rises, the other rises as well, and when one falls, so does the other. This is why the economy gets blamed for every real estate downturn. First of all, the overall health of the economy plays a major role in the value of real estate properties. Secondly, the job market contributes the amount of money available for people to buy homes. A city with a stable and growing job market will have a stable and growing housing market.
Job market growth, by itself, is an important factor seeing as it’s tied to the increase in population – markets offering more job opportunities will attract new residents. Moreover, if you’re investing in a rental property in a growing housing market, charging higher rents becomes more reasonable because tenants won’t have trouble paying. Therefore, property investors should look at the employment rate and projected job growth in the real estate market and, using our property finder tool, find the best rental properties for sale in the city.
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Factor #3: Supply of Homes
For many reasons, property investors should keep a close eye on supply vs. demand. To begin with, this determines whether a real estate market is a seller’s or buyer’s market. Additionally, a shortage of supply will push up rental property prices while, on the other hand, a surplus of supply will cause prices to fall. Simple economics. Knowing this will influence your investment decisions whether as a seller or a buyer.
Related: Is the 2018 US Housing Market a Seller’s Market or a Buyer’s Market?
A smart real estate investor will also watch out for future construction and buildings coming to the housing market. You want to ensure that the supply of housing will be able to keep up with the increasing demand as more and more people move to the city. At the same time, you don’t want to invest where there are more units built than people coming into the housing market because this could mean high vacancy rates. Experts believe that a healthy real estate market has 4 – 6 months of inventory.
Factor #4: Geographic Location
The geographic location where the investment property sits also has its influences on the housing market – it explains why some cities are more expensive than others. For example, Los Angeles, Seattle, and San Francisco face hard physical boundaries like coastlines and mountains, which limits the real estate market’s capacity for expansion, making it more expensive. You’d also notice that a waterfront home is usually priced higher than one not on the water. This is because investing in such rental properties is riskier due to the geography, and a real estate investor would have to put more on property insurance. Many also believe that climate change has affected property prices in cities like New York and Miami.
Related: Climate Change and Rising Real Estate Prices: Is There a Connection?
With location comes school districts, which also affect home prices. The school district (or even a specific school within a district) can drive demand in the housing market. Any real estate agent will confirm that investing in a district that has strong schools can affect home prices by as much as 10%!
To Sum Up
Owning a rental property is a great way to make money – the key is investing in the right real estate market. Successful property investors know that there are certain factors that make a certain area a good or a bad place to invest in. Even though these factors are out of your control as a real estate investor, you should still keep an eye out for them to assure making smart investment decisions.
With our real estate investment tools, property investors can analyze and compare rental properties in any real estate market to find the best one to invest in! To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
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