Ask a seasoned real estate investor what the most vital factor for the success of an investment property is, and they will tell you it is location. Location controls the most crucial dynamics which influence the success of a real estate investment.
Location determines:
· How much you pay to buy a property.
· The demand for that property.
· How much rental income it can generate.
· The rate at which it appreciates in value.
But the problem with a good location is that it does not retain this quality forever. The neighborhood may lose the things that make it attractive as the best place for property investors to locate their investments. It could happen because of the local economy or because there are too many property investors active in that market.
Only a few locations maintain their ability to keep generating high returns every year, and this is because there is strict control of entry into those property markets. Most areas lose their advantage in a few years. That is why property investors always search to find the newest promising locations for investment.
As a real estate investor part of your game involves finding little-known towns or metropolitan areas getting ready to become the next big thing for investment real estate. If you can find such locations before others and get in early - before property prices start to rise - you stand to make a lot of money.
How do you find these emerging real estate markets?
An investor’s guide to finding emerging real estate markets
To find a new best location, or “new boomtown,” for your property investments, you must be able to identify and know how to interpret the fundamental economic indices that predict an area’s future as a potentially viable investment location. The critical factors you should keep your eyes on are the crucial economic and housing metrics, namely:
1. Job growth statistics
People, especially young people, will move according to the employment opportunities available in specific localities. If an area is experiencing an influx of new residents, it is usually because of an inflow of prominent employers or government contracts into that location. You can obtain information on the current unemployment rates for an area, how those figures compare to the national average, employment trends in recent years, and the biggest industries in the location from the Bureau of Labor Statistics.
2. Population growth rate
Places with powerful local economies also have large stable populations. If an economy is booming, people naturally want to remain in the area. A growing population correlates with increased housing demand and higher rents. The two most important indicators of population growth are net migrations and birth rates. But to find emerging real estate markets, only net migration is essential. You can find Year-on-year data for net migrations on the U.S. Census Bureau website.
3. New residential construction index (Number of new housing)
An increase in the rate of demand for new housing means new families are moving into an area. Where that demand is strong enough, rents will also increase. Higher rents motivate developers to want to add more new buildings to the housing supply. Data on the number of new residential construction for any area is available from the Census Bureau’s survey of building permits and the New Residential Construction Index.
4. Existing-home sales
Right along with demand for new housing, there will be all-around greater demand for residential real estate in the area. Rather than wait for new housing, many new arrivals will opt to buy one of the existing homes. Investors moving into the neighborhood will also be keen to buy an existing home. The overall effect is an increase in the rate of existing-home sales. Data on existing-home sales is available from the National Association of Realtors (NAR).
5. Climbing rental rates
All the metrics mentioned above will combine to create one noticeable effect; higher rents. More jobs will lead to larger populations, and since people can move into a town faster than home construction, there will be a housing shortage. Rental property scarcity will force renters to pay even higher rents. The Observed Rental Index by Zillow is a tool that lets you access rental data by ZIP code as far back as 2014.
6. Days on market
The final metric is how many days “for-sale” homes spend on the market before they are bought. In a balanced market, houses may spend three to six months before finding a buyer. But in markets where demand for housing is high, they will often stay less than thirty days. That is despite the higher sales prices of those homes. A tool offered by realtor.com is probably the best way to research this metric.
Finally, speed is vital when looking for emerging real estate markets. By the time data for evaluating a location becomes available on the internet, it is often already too late. That is why you must do your private research.
For detailed questions feel free to book a consultation meeting with Deniz Senyurt, by clicking this link