What are red flags for a market for LTRs?

Question

Is it good if there are a lot of rentals available? Or, does that mean too much saturation? Is less availability bad, meaning not many wanting to rent? How do you analyze the need for renters for both ends?

Do school ratings matter for SFH?

As a beginner, I understand running the numbers as far as rent comparables, but also know there's more to consider than that.

For OOS Investors, how do you analyze a market? I've read several books, listen to several podcasts, but the market analysis question seems to be answered vaguely (research growth, rent comparables, job opportunities, etc)

Am I making it more complicated?

Caleb Brown · Answer

To understand how saturated a market is or not I would speak to a PM. You can see how much is listed for rent on various sites but that'll only give you a gauge. School ratings in my area matter in the suburbs. The cities public schools are terrible so school rating doesn't matter. Outside of that you can look at crime rates, etc but having a boots on the ground or local expert would be the best benefit of where to look in a specific market.

Dave Meyer · Answer

As others have said, its often a case of 'it depends.' When you're first analyzing a market you probably want to look at high-level vacancy, and speak with a PM. Once you narrow in on properties, I recommend you look at the availability of comps. If you buy Property X, who else will you be competing with? Will you be as good in the eyes of tenants as other properties on the market?

Just as an example, I invest in Denver. A few years ago a MF boom started (that is still going), and I realized my older units in cut up old victorians weren't going to cut it against new supply. I sold the house, and instead use some of the capital to buy a SFR with a yard. People in Denver love outdoor space, and tend to have dogs -- so in that way I could outcompete a lot of MF operators flooding the market. It's all about supply and demand for your specific offering.

Gilbert Gutierrez · Answer

Adam, what are the best sources to find this data?

Jacopo Iasiello · Answer

A high number of available rentals in an area can indicate oversaturation, which might lead to increased competition among landlords and potentially lower rental prices. However, it could also suggest a strong rental demand if the units are consistently occupied.

Benjamin Aaker · Answer

Is it good if there are a lot of rentals available? Look at the vacancy rate of the locality. Also look at the historical vacancy rate. A high rate probably means there are too many new units being built. It could also mean that people are relocating away from the city. Either mean you should look elsewhere.

Yes, schools matter, both for single family and multi- family.

How to analyze: Firstly, I recommend as a beginner to invest in your own market. There are deals to be had everywhere and you want your first rentals to be in a place which you can drive to. Even in those saturated markets, that'll put downward pressure on sale prices.

Keep in mind that for single family, you will be competing against retail buyers. They aren't worried about the house's ability to bring income. They want nice countertops or whatever. Generally, you'll need to find a place that doesn't appeal to the retail buyer, such as a lot of rehab, to get a good deal right now.

Adam Bartomeo · Answer

Not usually but it really depends on how many tenants are in the pool. From an owners point of view, lower inventory means higher rental prices and shorter vacancy time. This is ideal.

Yes! Absolutely! People find the best schools and look for houses around that school.

You should start with the state and then drill down. Look at crime, unemployment, net migration, job growth, school rankings, tax burden, quality of life, and other factors. Net migration and jobs will make or break most investments.

You are making it less complicated. There is a lot more that goes into it but you have a good start.

Jay Thomas · Answer

There are benefits and drawbacks to a high vacancy rate in the rental market. It can provide tenants more options and possibly lower rates, but it can also signal oversaturation and make tenant placement more challenging. Examine past vacancy rates and take into account different rental kinds, such as apartments, single-family homes, and dorms, to determine this. Examine the causes of the vacancy, including any new developments or economic influences. School ratings are important because they affect demand and rental revenue for single-family homes in addition to other criteria like community amenities and proximity to reputable schools. When conducting research on Tucson as an investor from out of state, pay attention to certain industries that are driving job development, local market statistics, property managers' insights, and online investment forums to obtain a deeper understanding than just surface-level facts.

What are red flags for a market for LTRs?

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