How to Choose a City for Real Estate Investing
Real estate investors are always on the lookout for the next hot city. Real estate investing tends to be more lucrative in areas that are on the move – however, once too many real estate investors get into the market, it may become increasingly difficult to find properties. Before you make your next investment, read these guidelines to help you decide which city you want to sink your dollars into:
● Foreclosure rates matter. Depending on the type of real estate investing you’re interested in, foreclosures may be a good thing or a bad thing. If you’re a flipper or want a bargain property, investing in a foreclosure can save you tons of money, allowing you to turn a profit on any improvements you make. However, an area with lots of foreclosures may mean that properties are priced too high and the city is in a slump. Do your homework and proceed with caution.
● Price-to-income ratio. The price-to-income ratio is a measure of how long it will take a family making a certain income to pay off the price of a home. Typically, the ratio uses the median family income and the median home price of a given area. Areas where there is a low ratio (compared to the average ratio) may represent good opportunities, because it means that homes are underpriced when compared to the average.
● Rent in the area. If you’re looking to enter the world of commercial real estate investing, look at rents in the area before you decide to buy. The price-to-rent ratio will help you determine if you’re making a good purchase. This article shows a good way to figure out the price-to-rent ratio for areas you may be considering.
● Decide what types of investments to make. Real estate investors fall into two categories: those who invest in a wide variety of properties, and those who are more interested in conquering a niche. While each strategy has its ups and downs, you should decide which type of investor you are before you choose a city. You may want to diversify when you’re entering a new area – or you may be more interesting in sticking to what you’re good at, this time in a new place. Before you put cash into a deal, decide what you’re most interested in pursuing.
Real estate investments can be tricky – after all, there are many factors at play, from local prices overall to the number of foreclosures in an area. At the end of the day, deciding whether or not to invest in any given city comes down to doing your due diligence and making the choice that works best for you.