Best Locations for Buy-and-Hold Rental Properties

[Aaron Paterson]

I own two townhouse rentals (Colorado and Wyoming) and am thinking about my next property.  I have a number of questions:

1. What are considered some of the best locations long-term for such properties?  Criteria would include good tenants, property manager, cash flow, and appreciation.  With respect to these criteria, I've had a good experience with the Colorado property (East Commerce City near Reunion) and a bad experience in Wyoming (Rock Springs).  Should I invest in northern Colorado again?
2. Is the best approach a conventional 30-year fixed mortgage with 20% down?  If yes, my price range is around $200-400K based on availability of down payment.
3. When should I consider a 1031 exchange of the existing Colorado townhouse (3/2.5)?  (Note: The Wyoming property is far upside down, which is why I don't consider selling it now.)  I'm reluctant to let this one go since it's been such a steady cash flow, but am also open minded to better opportunities (perhaps single family or duplex/fourplex).
4. Is the 2% rule possible?  My existing Colorado townhouse would yield a rent:home value ratio of ~0.7%, far off the 2% mark, yet it's still been a successful rental.

While I own two rental properties, I'm still a real estate novice and look forward to learning more from all of you!  Thanks in advance for your advice...

Aaron