First Rental Property

If you are a novice investor, one of the questions that probably is going through your mind is:

“If I buy a rental property, how do I know that I am buying it in a good location?”

If this question is going through your head, this is a good thing.

With investment real estate, there are many great areas to buy a rental property and then there are also very bad areas that you could buy a rental property.

The key thing to know is how to identify which are the good areas, and which are the bad areas.

By spending a little extra time and doing your homework, you can ensure that you are buying a piece of investment real estate in a solid area.

There are many factors to consider when buying. I have highlighted some significant factors that you must take into consideration before you purchase your first rental property.

For starters, you must ask yourself if there are any transportation improvements that are occurring in the city or town that you are looking to invest in. Transportation improvements can consist of things such as a new train station, a new subway station, new highways, or new airports. The construction of new transportation channels in a region is always a positive sign that the local economy will do well in the long run. When the local economy does well, so too will the short to long term appreciation rates of real estate.

If you are noticing transportation improvement in a region, this is a good sign. Begin to study the region further.

Another sign that you potentially are buying a rental property in a good area, is if the area is experiencing population growth. Not only should the area be experiencing population growth, rather the population growth of this area should be outpacing other adjacent areas. If this is the case, we know that there is a demand here. People want to be moving into this area. It is a desirable place to live. People will not want to move into an area that is undesirable. As such, there must be something special about this area. Continue to research it as a potential area to buy a rental property.

A third factor that you should consider when selecting your geographical area is the average income of the people living there. Most importantly, you need to know if the average income of the population is increasing. It is important that you know this information, as people with increasing incomes will generally have more disposable income. Not only will they have disposable income, in addition, homeownership for them potentially is easier due to their above average earning power. It is important to note that not all of these above average income earners will be homeowners. Many of them may very well be renters. As such, if you own a rental property in an area, where people are making above average income, you will be able to market your rental property to an audience of tenants who you know can afford living in your rental property.

Another important factor to examine when you are looking to buy a rental property in a particular area, is to observe and determine if the property is located in a transitional area. Transitional areas are often areas that are a bit rough around the edges, however, they are also areas that are experiencing significant long term change. It is through this change that long term real estate values can be affected positively, and in an upward trend. Not all transitional areas are created equal however. Some transitional areas many be at the very beginning stages of the change, whereas other transitional areas might be much further along the way with respect to all of the changes occurring. As long as you have identified a solid transitional area, with potential upside, this area could serve well as an area to purchase your first rental property.

Another factor, that is very important, that a lot of novice real estate investors forget to consider, is the political leadership of the given area. Whenever you are looking to purchase an investment property in a particular town or city, you must always ask yourself, ‘How is the political leadership in this community?’

This is a tremendously important factor to consider, as strong, forward thinking political leadership can help to increase the value of real estate prices in the long run. A city or town that is very innovative, entrepreneurial, and flexible will attract good things to that particular area. Big companies want to open offices in areas where there is good political leadership. Businesses want to operate in these areas, where they know that business, opportunity, and an entrepreneurial mindset is being rewarded.
Big companies do not want to open up offices in places that are experiencing slow growth, or negative growth. These companies do not want to operate or be associated with policy makers that are not going to work along side with them.
Strong and supportive political leadership in a region has a great effect. These are the areas that you want to be investing in.

If you are considering buying a rental property, and you know the area, but are unsure about the political leadership, call the town or city council and ask to talk to the mayor. Forward thinking, innovative mayors will want to speak with potential investors. They want to talk to you because they want you to invest in their city or town. They want their local economy to do well, and it will do well, if real estate investors like you, inject money into their local economy by buying rental properties.

If the mayor of the city or town is too busy to talk to each potential real estate investor, someone in the mayor’s office will probably put you in touch with the Economic Development Office. This is the office in the city or town, that knows everything, or should know everything about the local economy, the current policies, and the future plans of the region. If you speak to energetic staff at this office that are really passionate about their region, this is a good sign. Note this region down as a good place to potentially invest.

Ideally, you want to see present all of the factors listed above in a particular region before you buy a rental property. There are many areas that have these characteristics, as such are great places to invest. On the flip side, there are many areas that do not have any of these characteristics at all and are consequently terrible places to invest.

No matter what area you chose to buy your first rental property, make sure you do your homework, and exercise the necessary due diligence.