If you want to succeed in the arena of real estate investments, you have to select the appropriate geographical location for your acquisitions. Even if you have ample capital to start, an excellent road map for future direction, and solid instincts for property management, a bad location can demolish your potential from day one.
So which cities make for the most promising investments in real estate? How can you tell whether a city is worth it?
Investing in Other Cities
New property investors often assume they’re confined to whatever city they live in. If you plan to manage the property yourself, this makes sense: You want to be within driving distance of the property so you can get to it in an emergency, take care of maintenance requests, and just keep an eye on the place.
But if you want to see the best financial results, it’s better to open your eyes and pocketbook to other possibilities. Go ahead and evaluate other cities for their real estate investment potential.
You can adopt an utterly hands-off approach if you hire a property management firm from the start. Such firms exist to support owners in managing their properties, regardless of where they invest.
Depending on the arrangement you make with your firm, the company will likely help you research promising acquisitions, assist in their purchase, screen tenants, handle the maintenance, and even lead the eviction process if a tenant repeatedly fails to pay the rent.
All you have to do is investigate the property management firms in your target region and select a partner you feel good about working with.
Factors to Consider
Once that’s out of the way, you might ask what makes a city worth investing in? Which factors should you consider in order to assess whether a city is a good fit for your portfolio?
- Population. Population and population density can play a role in your investment in several ways. In a city that’s heavily populated, you might see greater demand for rentals, which makes it easier to fill vacancies and generate income right away. In a sparsely populated area, you might have a harder time filling vacancies, but the cost of acquiring property may also be lower – plus, you’re likely to face less competition from other investors.
- Population growth. You also need to think about the trends in population growth in the area. Has the city been growing consistently in the last several years? Or could the population be stagnating? If the numbers are declining, that may be a troubling sign for the future – but trends might also reverse themselves.
- Real estate prices (and historical changes). Before buying a property, it’s wise to research current real estate prices – as well as past trends. A discernible pattern doesn’t necessarily mean the future is predictable, but you might get a sense of the direction in which a city is headed by looking at previous developments. For example, if a neighborhood keeps getting more attractive and prices rise accordingly, you may want to jump in before you get priced out.
- Employment. Great employment opportunities always bring more people to a city. Pay attention to new and large employers in the area when you evaluate its potential for real estate investing. Also, if major employers are leaving, you may want to steer clear.
- Transportation. Access to highways and major thoroughfares is always a plus for a city. Depending on the location and the demographics you hope to serve, it may also be valuable to find a place with intact sidewalks and/or public transit that’s conveniently available.
- Schools, crime rates, and neighborhood factors. Each individual neighborhood is going to vary on such factors as school district quality, crime rates, and aesthetic appeal. In general, the better and safer a neighborhood is, the more valuable it’s going to be – and the higher the prices will be. Look for great prices in up-and-coming areas if you seek a promising investment.
- Opportunities. How many other opportunities might be available in your target city? Sometimes, it pays to invest in a neighborhood where you can buy (and manage) multiple properties; this gives you more control over the future of the neighborhood.
- Upcoming changes. Are changes coming to this city that you know about? For example, could there be an impending population surge, or is a substantial new employer moving in next year?
Ultimately, there are no utterly right or wrong answers when you speak of financial investments. A city that works well for one investor may be problematic for another, due to their differences in risk tolerance, investment time horizon, current access to capital, and other variables.
Make sure you weigh your own goals and aspirations when you study the pros and cons of various cities, as well as the facets listed above.
