How to Tell a Great Investment Market

There are lots of factors that determine whether a property is a wise investment – the age/quality of the home, the neighborhood, and the local amenities, to name a few. Another important – and arguably THE most important – criterion to consider is the market itself, and whether or not it’s a good one. There are several key factors driving a local rental market’s performance, and the success of your investment is closely linked to this. Before you purchase rental property, you need to decide if the market is the right one to buy into.

Market Types

First, let’s talk about the various markets you’ll encounter. There are three, so this won’t be tough to remember.

1. Growth market – The term “growth market” is music to an investor’s ears. These markets are experiencing population increases, which in turn drives up occupancy and rental rates. This is the kind of market you want to try and break into at the beginning of the growth cycle.
2. Stable market – A stable market isn’t a bad place for an investor to be, either. In a stable market, populations, home values, employment, and other factors are holding steady.
3. Declining market – A declining market comes with significantly more risk for investors. In these markets, population is trending downward, meaning more vacancies and reduced rent values.

Determining Market Type

Knowing what type of market your potential investment is in is important because it can directly affect everything from your monthly cashflow to your exit strategy when you’re ready to unload the property. The question at hand now is how to tell what type of market you’re dealing with. Here are some of the factors to take a look at:

1. Population – This one is huge. What are the population stats from the last 10 years or so? Has it been rising, falling, or keeping steady? What are the projections for the coming years?
2. Jobs/Industry – The employment sector is another area to examine. What’s the job market like in the market you’re eyeballing? Are there several strong industries present, or is the market limited to just a couple of major players?
3. Liveability – What’s the general liveability of the area? Is it a desirable area that is attracting people? In other words, what does this market have going for it that others do not?

Once you review these factors, you can make a reasonable assumption about the market type and how it’s trending. Right now, there are several promising markets for investors to look into. According to Forbes, some of the hottest areas are Grand Rapids, MI; Orlando, FL, San Antonio, TX; Charlotte, NC; Salt Lake City, UT; Dallas, TX; Austin, TX; and Ft. Lauderdale, FL. Kansas City, MO is another emerging market, with a steadily growing population and major employment opportunities happening now and in the very near future.

Before you invest, research the current state and the potential for growth of the market you’re considering. If it’s on the decline, you’re probably better off avoiding it altogether. However, if all signs point to growth, the time to act is now.