A strong past performance in rental growth doesn’t guarantee strong future performance. So how do you find a market with steady rental growth for the next decade? Paying attention to market fundamentals that drive rental growth will help you identify those markets with long-term growth potential. Here are some market fundamentals to research that will help you make a more informed decision when searching for rental markets to invest in.
Look for markets that have sustained positive year-over-year (YoY) population growth for the last several years. This is obviously a good indicator that the market is either attracting new residents, or growing from within. Either prospect bodes well for investors as more folks generally means more demand for property.
Another indicator to research is household income. Without household income growth, there won’t be healthy rental growth. If a city has a strong rental income growth but a weak household income growth, then it’s a sign that residents may be getting priced out of the market.
A decreasing crime index is generally a sign that the city is improving. Companies also study the crime index to make sure that their office locations are attractive to workers, especially those with families.
Income to Rent Ratio
This is a great metric for measuring affordability in the area. You obviously want to insure that median household income to median rent ratio is at least 1:1. A higher multiple of income to rent tells you that rents have not exceeded the residents’ ability to afford them.
Taking a look at a employment growth YoY and insuring that it’s trending upward is another great indicator of a healthy market. Employment growth has always been a key indicator of the economy. A growing population is not sustainable without good employment growth.
Median Home Value
With all of your other economic indicators looking good, it’s also a good idea to check on property appreciation in a prospective market. Not only is price appreciation a good sign of a growing market, it may also indicate that more residents may turn to renting with escalating home prices.
When doing your research, keep in mind that all of the data you need can be found on such sites as Data USA, City-Data, and the Census Bureau. A little Googling will go a long way as well to help you determine what market is best to start building your rental portfolio in. As always, CIVIC is here to help you every step of the way…give us a call at 512-790-6754 to start planning your next rental property acquisition.
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