How to Research a Local Rental Market

If you're a real estate investor looking for the next great opportunity, researching local rental markets is essential to avoid financial mistakes. Understanding typical prices for rent and other factors in an area will help you make an informed investment decision. A thorough market research analysis can help you identify demand, competition, lead sources, and economic indicators so you understand how profitable a given investment might be. In this guide, we'll look at how to research a local rental market to make smarter real estate investments. 

What to look for in a local rental market

Once you've found some areas that could be good possibilities for investing, it's time to dive deeper into what they offer. You want to consider both the statistics of a community and the amenities it has.

Neighborhood and home amenities

When purchasing real estate, one of the most important elements to consider is the amenities available in the neighborhood. Amenities include public transit access, nearby parks, quality schools, and convenient shops and restaurants — and can greatly impact a property's value now and in the future. 

In addition, amenities inside a home matters. Certain home updates can increase tenant interest, including things like smart appliances and renovated outdoor patios. Tenants will be more interested in a property that offers those benefits than one without, and are likely willing to pay a little more for them.

City and neighborhood statistics

Investors want to know a lot of information before picking a market, ranging from crime rates and home prices to the overall trends of a community. Statistics about the city and neighborhood are key indicators of whether a market is good for investing. A smart investor should also consider things like the unemployment rate, census information, rental occupancy rate, rental rates, and how long properties are on the market. It's also a good idea to find out whether it's currently a buyer's or seller's market so that you know what competition you might face in buying a property, and how long vacancies might last between tenants.

Where to find rental market information

So where exactly do you find all of this information? It's important to get your information from multiple sources and have a balance between resources that might have bias and those that are objective. Here are the main places to learn about a local real estate market.

1. Online listing websites

Online listing sites like Zillow and Redfin are a great way to get a snapshot of the vibrant real estate market. By providing comprehensive data on recent sales, current listings of homes, and insights into mortgages, these sites give investors much of the information they need to get started in their search. Researching neighborhood-specific reviews on local social networking sites like Nextdoor can also bring a unique perspective which will help build an understanding of the pros and cons associated with investing in that particular market.

2. Government websites

Numerous federal government websites such as the U.S. Census Bureau or the FBI Crime Data Explorer, as well as local city and county websites, may hold valuable information about average home prices, neighborhood crime rates, and overall trends within the area. 

3. Local real estate agents

One of the most valuable resources you can consult is talking to a local real estate agent. Local agents are an invaluable source of information due to their first-hand expertise of the area, deep familiarity of available properties, and understanding of pricing trends. A knowledgeable real estate agent knows the best strategies and techniques for identifying up-and-coming neighborhoods that other buyers may have overlooked.

Check the competition

After zeroing in on a neighborhood, the next step is to look at competitor properties to the one you'd like to invest in. To offset any impacts from market changes, focus on properties that have sold recently or are currently for sale. This will help you determine what the value of your desired property should be right now. A ballpark estimate of the home’s value will make it easier to decide whether or not you're getting a good deal, if you choose to invest in it.

Run the numbers

One last key to investing is reviewing your own finances. Even if a neighborhood looks promising, it's important to ensure any investment is fiscally responsible. You don't want to just look for the best neighborhood and find out that you can't afford the mortgage. Real estate investing can be lucrative, but only if the rent covers your mortgage payments and other rental property expenses. Make sure to account for things like maintenance costs, property taxes, and insurance — and set your rental rates accordingly.

Make a wise investment with research

When you’re considering a new property to invest in, it’s essential to do your research on the local rental market. With the above tips in mind, you should be able to research a market and determine whether or not it’s a good investment for you. By taking the time to find out as much as possible about a potential rental property and its surrounding area, you can ensure that you’re investing in something with real potential. So get started on your research today, and see where it takes you!