Demographic Factors You Must Consider Before Buying Rental Property

There are so many things to think about before purchasing investment property. Finances, location, condition of the property, what you plan on doing with it now and in the future...the list goes on. But if you’re not adding “demographics” to it, you’re potentially setting yourself up for failure.

Here’s why:

Demographics are one of the most critical pieces of the real estate puzzle. These factors - age, race, gender, income, crime, schools, population, employment - paint a picture of an area which gives you additional insight you need to make a smart decision. These stats help you learn more about your rental pool, which marketing strategies you should employ, and even what types of repairs or problems you may encounter after the property is rented.

Age

What’s the median age of people in the area you’re targeting? You’ll want to know this, because different age groups have different needs, wants, behaviors, spending habits and more. If you’re in a place with a lot of millennials, you may want to consider that they likely have less disposable income. Most are saddled with student debt and have just entered the workforce, leaving them less to spend on housing and other things. Conversely, middle-aged folks with older or grown children may be able to afford a bit more.

Income

Income is closely tied to age, as statistics show that income tends to rise with age. Obtaining information about your prospective tenants’ income range will give you more insight on their spending power and habits, as well as point to other relevant data. Lower incomes, for instance, are usually linked to higher crime rates and decreased access to educational and community resources.

Crime

The crime rate for your area is another important statistic you need to know. People want to live in areas they feel safe and secure, so choosing an area with a higher than average crime rate will increase your risk as an investor. You’ll have a smaller tenant pool and greater likelihood for tenant turnover and eviction. Property values in these areas will be lower and you will be more likely to incur crime-related costs (i.e., damage to property).

Schools

Properties located near good schools will attract a specific group of people - families with kids. Knowing the quality of the schools in your target area will help your marketing efforts to better appeal to these folks, and you can use this info to ensure you choose a property that will attract this group.

Population

What’s going on with the population in your market? Is it growing? Declining? Staying the same? These stats will indicate whether a property is likely to perform well or not in the short and long term. Increasing population usually means bigger profits for investors, as all of these people need places to live, but there is only a finite number of available properties. On the other hand, a declining population is not a good sign for investors, as demand for rental properties will likewise decrease.

Employment

Finally, the types of employment opportunities for tenants renting in your area also matters. You want a property in an area with a large and diverse range of jobs in a growing market. More jobs means more work for more people and more money for everyone. For you, this means a greater chance to profit off your investment.

Equipping yourself with as much information as you can is crucial to making a wise investment decision. Demographic factors are a big part of this. Gathering this information will assist you at every stage, from property scouting to purchase to management and even selling.