When you’re getting started with rental properties, the last thing you probably think about is where to buy them. However, choosing the right locations is one of the most important decisions you will make as a new landlord. Picking the right locations for your properties can have a huge impact on their profitability. In this blog post, we will cover some general advice on how to choose the right locations for your rental properties and share some examples of good and bad locations for rental properties. We find this topic super interesting and have included as much detail as possible so that even if you are new to real estate investing, you’ll understand exactly what we mean when we discuss location, property value, rent efficiency and cash-on-cash returns.
Table Of Contents
How to Identify the Right Locations for Rental Properties
There are a few factors to consider when picking the right locations for your rental properties. By taking these factors into account, you’ll be able to find areas with high expected returns, low risk, and a strong demand for rental properties. First, you’ll want to consider the cash flow of the property. This means looking at the rental rate of the property, vacancy rates, and cost of repairs. All of these factors will determine the amount of cash flow in your property each month. This is important because cash flow is what will allow you to pay your mortgage each month, maintain the property, and maximize your profit at the end of the year. Next, you’ll want to consider the risk of the property. This means looking at factors like the surrounding crime rates, property condition, and the tenant population in the area. These factors will let you know how likely it is that you’ll have to make repairs, deal with vandalism, or have to evict a tenant.
Assessing the Risk of a Location
The risk of a location is the likelihood that something bad will happen to your rental property or business. You can determine this by looking at the surrounding crime rates, property conditions, and the tenant population in the area. We’ll dive into each of these factors in more detail below, but first, let’s take a quick look at how to calculate the risk of a location. The risk of a location can be shown as a percentage and is determined by looking at three things: Risk = Likelihood of something bad happening × Consequences if something bad happens The likelihood of something bad happening will depend on the surrounding crime rates and property conditions. The consequences if something bad happens will depend on the tenant population.
Determining Property Value in a Location
The property value of a location is the amount of money someone would pay for the land, construction, and the building in a location. The property value of a location is different for every neighborhood. It’s based on a combination of the demand for rental properties in the area and the supply of rental properties that are available. The demand for rental properties in an area will depend on the population and average income in the area. The supply of rental properties will depend on how many rental properties are available in the area.
Estimate Cash-on-Cash Returns for a Location
The cash-on-cash return is the net annual cash flow of a rental property divided by the amount you paid for the property. This will give you a percentage that will tell you how much money you make for every dollar you spend. When you look into an area, you’ll want to estimate the cash-on-cash return for buying a single family home, apartment complex, duplex, and other rental properties in that area. You’ll also want to estimate the cash-on-cash return for investing in mutual funds, stocks, and bonds.
How to Find Great Locations for Your Rental Properties
When you’re looking for great locations to buy your rental properties, you’ll want to find areas that have high demand for rental properties. This means finding areas where the population is growing and incomes are high. You can find this data for the US at the county level on the Census Bureau website. By going to the Census Bureau website and searching for rental rates, population, and income, you can select a map to show rental rates, population, and income for each county in the US. You can also find this data for specific cities by searching for “rental rates”, “population”, and “income” on Google. If you’re looking for great locations for your rental properties, you’ll want to look at the data for specific cities to find the best areas.
The Bottom Line
If you want to make money with rental properties, you need to pick the right locations. Before you buy a rental property, you’ll need to find the areas that have a high demand for rental properties and a low risk. Finding areas with high demand for rental properties will depend on the population and income in the area. Finding areas with low risk will depend on the surrounding crime rates, property conditions, and the tenant population in the area. If you want to succeed with rental properties, you need to choose the right locations. You can find areas with high demand for rental properties and low risk by searching for rental rates, population, and income at the county level.
If you found this article helpful, please subscribe to my newsletter by filling out the form below so you don’t miss out on any future posts. Also, if you have any article ideas in mind, feel free to leave a comment on a topic you would like covered in an upcoming post.
