As we arrive in the homestretch of this year, we thought it would be a good idea to take a look at some of the best places to invest in rental properties in 2019. At Mynd Property Management, we are active in a number of markets across the country. We have a unique view of where things are going well and where investors are struggling.
Before you decide to buy a rental property, you’ll need to figure out what your investment goals are. This will have a huge impact on the market you choose. So, we’re categorizing our advice on where to invest into two different investment strategies.
If you’re looking for long term investments, you’ll want to buy rental properties in markets like Dallas, San Antonio, Austin, or Atlanta. Those Texas cities are amazing for long term returns on rental properties. We think there’s a lot of potential for investors who are hoping to hold onto their properties for many years. You can plan on strong appreciation plus a decent cash flow when you know where to look and how to structure your investment.
For short term investments, we suggest you take a look at the Midwest. You’ll find some excellent opportunities in places such as Columbus, Ohio, Memphis, Tennessee, and Indianapolis. These markets provide investors with high yields and good cash flow.
But let’s dig a little deeper into these markets and talk about what you should be looking for. If you’re an experienced investor who is growing an existing portfolio, you’ll want to find properties that fill some gaps or complement what you already own. If you’re a new investor, you’ll want to spend some time doing some research and due diligence before you make your first purchase.
Long Term Investment Strategies for Rental Properties
When you’re planning to invest for the long term, you have a specific set of criteria that you want to look at before you acquire a new rental property. We recommend that you look for appreciation, that you evaluate the growth numbers, and that you take a holistic view of the economy. These are the things that feed a successful long term investment property.
Dallas is a great market and it illustrates everything that we’re talking about. There’s a lot of potential for growth in Dallas. For example, last year, there was a 10 percent growth; and that’s a great number for investors who want to allow their properties to grow in value over time. You’re going to make a lot of money with that kind of growth.
The challenge with Dallas and markets like Dallas is that they can be hard to get into. If you want to buy something in the Dallas proper area, you’ll find that you have to spend a bit more than you might have planned. If you find that you cannot locate a great investment property in downtown Dallas, there’s nothing wrong with going out to the suburbs. In the outskirts of Dallas, you can find and buy a home that’s affordable. With that property, you’ll be able to hold onto it for a while. The rental income will be steady and the rental value will continue to increase. As its value increases, this property will deliver a lot of appreciation and it won’t be long before it becomes a cash cow.
There are some other factors we like to look at when we’re deciding where our clients should invest. For example, we like to follow where the young people are going. The millennial generation is huge and it’s arriving in the rental market in a large wave, especially recently. If you’re an investor who wants to attract millennial tenants, you need to make sure you’re buying in places that they want to live.
This is a big demographic, and it should be a part of your investment strategy. The millennial tenants we see flooding rental markets want to be in or near a city. They want homes in Austin, Dallas, and Atlanta. So, as an investor, there’s a huge potential in these markets. Austin actually has had the most growth in the country for the last three years. We know the millennial population wants urban areas.
A good strategy is to pick out a suburb that’s close to the areas that they’re flocking to. In Dallas, you probably won’t have a lot of millennial tenants who can afford a glitzy new Dallas high-rise condo. But, if you buy a property in the suburbs, you’ll attract millennial tenants who want to be within commuting distance. They might be looking for a home that’s less than 30 minutes away from downtown, especially if they’re starting a small family. So, check out the outskirts when you’re looking for a profitable investment. You’ll find a reliable population of well-qualified tenants and a growing economy.
Consider Atlanta and some of these Texas markets. In Frisco, right outside of Dallas, there’s a section of commercial real estate called Five Billion Dollar Mile. A lot of corporate headquarters are developing properties there. It’s where a lot of the new jobs will show up around Dallas. Invest there, and you won’t only have a lot of long term appreciation – you’ll have an endless supply of tenants with excellent jobs. Isolate your search to these economic and population-heavy areas.
Short Term Investment Strategies for Rental Properties
We prefer long term investment strategies, but we know it’s not for everyone. If you’re only interested in holding onto a rental home for a short amount of time, with cash flow in mind, you’ll need to focus your search on areas where it’s still cheap to buy a property. It’s still important that rents are high in these areas; however, so you can earn the income you want.
Take a look at Memphis, for example. This is a great market for short term investors who want to earn as much as possible in rent and not think too much about long term strategies. In Memphis, you can buy a great home in a desirable neighborhood for $150,000 or even less. With that reasonable investment, you’re going to earn a rent that’s around $1,200 or $1,300 per month. You’ll have immediate cash flow. You can find these types of numbers in markets like Indianapolis as well.
Find out where these markets are. Do some research and get to know where you can earn the money you’re hoping to earn. There are a lot of areas in the Midwest where this is possible. Your best investment markets won’t necessarily be on the coasts.
The one thing you’re looking at when you’re trying to decide about an investment is how much that home will rent for. It’s important, before you buy, to research the average market rent in the community. Compare that rental amount to the purchase price, and crunch your numbers.
You also want to look at vacancy rates because that will have a huge impact on your cash flow. You can find vacancy and occupancy rates on sites like Zillow Research. Buy a home in a market that has high occupancy rates. That will translate to lower vacancy, so you’ll have an easy time cash flowing. A vacant property obviously doesn’t bring in any rent. Not only are you losing rent, you’re paying to keep the house up and losing money on utilities, landscaping costs, and other expenses. You’re not counting on appreciation as a short term investor, so you cannot invest in a rental home that’s likely to stay empty.
When you’re sourcing potential investment properties, don’t forget to calculate your maintenance costs. You don’t want to buy a property that has a 17-year-old air conditioning unit. If you have to replace that unit while you own the property, you’re going to lose money. Think about what you’ll need to spend on rehabs or renovations. Think about what will be required just to get the property ready for the rental market. If you have to pay $4,000 for a new air conditioning unit and you’re only cash flowing $200 a month, you’ll have a hard time earning any money off your investment.
First, think about what kind of investment you’d like to make. Once you know whether you’re going to buy for the long term or the short term, you can decide on a market that meets your needs. There are a lot of opportunities to invest in real estate. Property values have gone up between six and eight percent over the last year or two.
Think about your home value and what you’re hoping to do with that property. Then, we can help you find the right market and the right rental home.
At Mynd, we help people identify great investments in markets across the country. We can source some opportunities for you and run a rental analysis to ensure you’re successful when you invest.
If you have any questions or if you'd like to move forward, please contact us at Mynd Property Management. We’d love to learn more about you and help you choose the right investment.