The first important characteristic to consider is vacancy rate. This is important because a vacancy has the potential to be your biggest cost. Tenant turnovers are inevitable, but you have to consider how long it will take to get a new tenant into the property. Every month without a tenant is a month you aren’t collecting rent. Your goal should be to invest in markets where properties are quickly and consistently rented. Personally, I like a vacancy rate of about 5%. Want to know the five cities with the highest vacancy rates? Click here.
Another thing to consider when assessing a market is taxes. I like to purchase my investment properties in states where property taxes are low, just a few hundred dollars per year. Remember, every expense comes out of your bottom line, and taxes are no exception.
I also love to invest in markets that have American-based infrastructure. We’re looking for average cities, the crossroads of America! Chain restaurants, long-haul trucking, hospitals, airports, universities, and distribution centers are all businesses I like in my rental markets. Think specifically about jobs that are not going overseas. Where there is job stability, you don’t have to worry as much in a recession.
Another attribute of a great rental market is a lack of flood zones. If your investment is located in a flood zone, you’ll have an additional expense—flood insurance. And if a natural disaster does occur, your investments are gone. I don’t like that risk, and I don’t like that added expense.
Personally, I also look for affordable labor. It’s just not something I want to overpay for. It’s about developing relationships with contractors. I provide my team with consistent work, and they work for a fair wage. It’s a win-win for everyone.
You'll also want to consider the cost to acquire homes in the market. Economically, it doesn’t make sense to acquire a rental home in a place like California. I can get the same home for at least half the cost in the Midwestern markets that I like. This way, I can purchase more investments and achieve that Freedom Number!