4 signs a market is a smart investment
Considering a real estate investment?
“Where do I even begin?” is the ultimate question for newbie investors. It’s about timing and location, sure…along with a host of other factors. Those who have been in the game long enough know to look for certain signs that indicate investing in a given market would be a wise decision.
As a budding real estate investor, you’ll want to keep an eye out for these signs:
1. A balanced inventory
One of the most overlooked indicators of smart investment is a market’s inventory level. When considering local real estate markets, first identify how quickly the inventory is selling as well as the existing months of supply.
For example, if the market has five-to-six months of supply, it’s a balanced market (your first sign). Assessing the inventory helps you predict the price pressure in the next six months, at least. When the inventory is supposed to last more than six months, you’ll likely experience downward price pressure.
On the contrary, an upward pressure suggests that inventory may not last that long. That’s bad news if you’re planning to buy a property in such a market. To make a profit, you want to “buy low and sell high,” as with any sound investment.
2. Budget-friendly city
When choosing a city for property investment, it’s important to consider your budget, of course. If it makes sense to invest in the Big Apple with your budget, hey, go for it! Properties in New York City are almost always appreciating. And, if your budget fits an investment in downtown Houston, that’s excellent, too. If you’re not on a champagne budget, you might want to check out secondary markets that are on the upswing, like Salt Lake City or Memphis.
Make a list of cities that fit your real estate investing budget and then narrow down your search by area. Search Airbnb and rental websites to get a sense of how short-term and long-term rentals perform in each location. You want to select a city and area where a higher occupancy rate and higher rental income are typical.
And…that’s your second sign!
3. A healthy economy
You’ve lived through at least one recession and now a global pandemic as well, so you know these adverse events impact all states and cities. Yet with most national trends, many cities are less affected or remain wholly unaffected. This is why you need to understand how the local economy is performing.
Area realtors will have the inside scoop on this. The local job market also plays a vital role. If a region is heavily dependent upon one or two industries and too many people have lost their jobs recently—we’re looking at you, Rust Belt of the 80s and 90s—they may not have the means to support your investment.
And when the investment involves hundreds of thousands of dollars (or millions for high-end properties), people living in that area ought to have high disposable incomes. Everything is interconnected.
What if short-term rentals are your jam? Another crucial part of a local economy you want to investigate: tourism. The more popular a city is with tourists, the higher ROI you can expect from your Airbnb rental property.
4. A growing population
A healthy economy means that people are flocking to the city for jobs and new industries and companies are popping up every few months. Many families settling in and raising kids will require an array of services, which will create more available jobs and in turn, a more robust economy.
From the property investment perspective, you want to choose a city where net migration is increasing the population (note: you’re not just looking for a positive birth rate).
That means there are going to be more people looking to rent or purchase properties, which translates to more opportunities for you!