Knowing how to find the best places to invest in real estate is all about crunching the right numbers. Regardless of the economy, there are always real estate opportunities. You just have to know where to look! So, our goal in this blog is to show you how to do just that.

Real estate investing is a hyper-local game. One neighborhood may have a different feel and run completely different numbers than the neighborhood a few streets over. So, be specific when you apply this information to potential investment properties.

Before we discuss the guidelines of a good market, you need to consider your parameters. For example, what price point are you comfortable with? What area(s) are you considering? From there, you can hone in on specific neighborhoods. Don’t be afraid of venturing away from where you live—there are plenty of ways to easily invest in out-of-state real estate.

How to Find the Best Places to Invest in Real Estate: 4 Main Points to Consider 

1. Property Prices 

The first way to identify a good market is when property prices are not more than three to four times the median income. For an example, consider Colorado Springs, Colorado. The median household income in that market hovers around $72,000. According to this rule of thumb, property prices should be no more than three times the median income—$216,000. 

So, our next step is to research the median sales price. According to Redfin, that’s $430,000 in Colorado Springs! That’s almost six times the median household income, meaning Colorado Springs is an overheated market.

To provide another example, let’s look at Bellevue, Nebraska. The median income is $79,839, and the median property price is $264,000. Then, $79,839 times four would be $319,356. Based on these criteria, Bellevue, Nebraska, is potentially a good place to look at purchasing property because the median sales price of homes falls is less than four times the median household income. That means the median house value will catch up to the median income at some point which projects good appreciation for your property.

2. Rent 

The next way to identify a good market is to research how strong the rents are in the area and what drives them. The monthly rent must be at least 1-1.5 % of the purchase price. So, for a $300,000 house, you want to get at least $3,000 in rent.

Interest rates play a factor – this rule was created around 7-8% interest rates (list today’s rate), but at historic lows, you could get away with a .5-.8% return. That’s why weighing this ratio with the other three is important.

3. Housing Supply 

The next way to identify the best places to invest in real estate is by studying the housing supply. A good market should have about six months’ worth of supply, where supply means the number of houses listed. 

To calculate supply, take the number of houses currently for sale and divide by the number of houses sold last month. The result is the number of months it would take to sell the current inventory of for-sale houses. 

Three months of inventory is a hot market (seller’s market). Six months of inventory is a balanced market (equal for buyers and sellers). Nine months of inventory means the market is soft (buyer’s market). I like to buy when the trend is moving from a soft market to a balanced market.

4. Job Growth 

Finally, consistent economic growth is a key indicator of a profitable investment market. A booming economy shows that new people are drawn to the market and will be drawn to the market, and those people need a place to live. Here are some tips on how to find strong job growth:

•  Identify influential corporations, universities, and government institutions driving local employment and housing demand.
• Stay informed about initiatives and projects that foster job growth and infrastructure development.
• Look for low unemployment rates and consistent job creation across various industries. 

8 More Factors to Consider When Choosing an Investment Market

1. Does this market set you up for purchasing multiple properties?

• This gives you more opportunity to execute real estate strategies such as fix-and-flips and work towards your Real Estate Professional Designation. This designation has huge tax benefits!

2. Where is the nearest city with the largest growth pattern?

3. Is there an opportunity to make an impact in this community?

4. Is there a gap in this market that you can fill? 

• For example, do rental listings have good photos? Are they staged well? Is there a marketing edge you can bring to this respective area?

5. Do you like the area? Would you look forward to spending time there?

6. What businesses are in the area? Is it a hot spot for economic growth?

7. Is there anything nearby that would draw interest for vacation rentals? 

• Think: Beaches, mountains, universities, major sports teams, etc.

8. What are the property taxes in this area?

• For example, Texas has no state income tax, but its property taxes are atrocious. So, when I’m buying in Pittsburgh, Texas, I have to stay closer to 1.5% on any property, including higher up the scale, because the property taxes will hammer me.

I hope this blog helped you learn how to find the best places to invest in real estate! If you want to dive deeper, join us for The WealthBuilders Real Estate Workshop in Denver, Colorado, or online via livestream April 5-7. You will learn more about analyzing a market and be able to ask your real estate questions during our live Q&A segments! Click the banner below to learn more and register.