Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

How to Find the Best Market for Rental Real Estate Investing

Housing-Market / Buy to Let Jul 13, 2011 - 04:47 AM GMT

By: Money_Morning

Housing-Market

Best Financial Markets Analysis ArticleMartin Hutchinson writes: The weak U.S. housing market and high inflation, despite their negative effects on the economy have actually created a promising opportunity for rental real estate investing.

Truth be told, we're not going back to 69% homeownership rates anytime soon. With mortgages steadily harder to obtain, more would-be homeowners are renting.


This heightened rental property interest has given landlords more power - which means rent prices are going up and are likely to continue doing so. The national average rate for home and apartment rentals has climbed 6.7% from June 2010, according to housing search engine HotPads.com, and analysts expect another 3% jump in 2012.

Inflation is here and likely to increase, which will also push rents higher.

Overall home ownership cost is exceptionally favorable - even if home prices have a little further to fall - since long-term interest rates are currently near all-time lows. Prices in many markets have already dropped far enough that rental yields are quite juicy, especially compared with interest rates.

When choosing where to invest in rentals, my first recommendation - unless you know a local agent in whom you have great confidence - is to focus on the area in which you live. As I have discovered (to my cost), rental real estate can be a mass of minor crises and costs, which are very difficult to deal with for a small investor who is not on-site.

However, that's not always possible, like for those unlucky enough to live in big-city California or Detroit, two areas where rental real estate is unattractive. I would say there are three main criteria you must evaluate when selecting an area to invest in:

•Employment.
•Price trends.
•And rental yields.
Looking at each we can narrow down the best rental real estate market in the United States.

Avoid an Unemployed Tenant
In a normal good economy, local employment trends don't matter too much for a real estate investor, although you always want to avoid the obvious black spots like Detroit.

But when U.S. unemployment is close to 10% -- and near 16% when you take account of all the "discouraged" workers who have stopped looking - you want to select a region in which jobs are growing and unemployment is below average. You want to make sure your tenants, should they lose their jobs, have a decent chance of getting another one fairly quickly.

The U.S. Bureau of Labor Statistics publishes monthly data on state unemployment trends, the Regional and State Employment and Unemployment Summary. You can tell from the most recent report that you want to avoid much of the Midwest, Florida, California and Nevada, which all have double-digit unemployment rates. Even though prices in these states may be down 50% from their peaks, the chance of being stuck with an unemployed tenant is just too high.

Conversely, the Plains states, such as North Dakota, South Dakota and Nebraska have almost no unemployment, while Virginia and Maryland have relatively low unemployment.

But beware suburban Virginia, from which I have just moved, and the Washington, DC suburbs of Maryland: They're expensive, have low rental yields and are dependent on the government - avoid them!

Make Sure It's a Bargain
To get the most for your money you can follow house price trends from the Standard & Poor's Case-Shiller Home Price Indices, which track prices for 20 metropolitan regions. Looking at the latest data you will note that the average house price is still 41.2% above that in January 2000, about the same rise as inflation in that period, so house prices are still not spectacularly cheap.

To choose an investment area, you can look for two types of bargains. One is regions where prices are no higher than ten years ago, like Detroit, Cleveland, Las Vegas and (almost) Phoenix and Atlanta. The other type is areas where prices have dropped more than 50% from their peak, like Phoenix (again), Miami, and Las Vegas.

Eliminating Cleveland, Detroit, Miami and Las Vegas because they have high unemployment, you are left with Phoenix and Atlanta. Both have an unemployment rate between 9% and 10%, around the national average. To these you should probably add Texas, which had much less of a boom, and where reasonable prices combine with relatively low unemployment.

Find a High Rental Yield
Finally you'll want a high rental yield. You can use the inverse calculation, the price-to-rent (P/R) ratio, which divides the average cost of home ownership by the yearly estimated received rent income.

Moody's Analytics (NYSE: MCO) calculates P/R ratios for about 70 metropolitan areas, as well as the United States as a whole. This data is subscription-only, but fairly recent versions can easily be found on the Web.

From this data we learn that in the third quarter of last year, the average P/R ratio in metropolitan areas was 14.9, while that for the United States as a whole was 10.4, and that both figures were still somewhat above their 1989-2003 average of 12.0 and 9.4, respectively.

With rents rising, P/R ratios will be declining so the arithmetic is now somewhat more favorable. Given that borrowing costs are in the 4% to 5% range, and that maintenance costs and taxes are high, I would personally not consider investing in rental real estate for a rental yield of less than 8% -- in other words, a P/R ratio of more than 12.5. (Yes, one hopes for a capital gain, but a negative cash flow year-by-year quickly eats into this.)

You should note that rental yields are higher in small towns and rural areas than in major metropolitan areas, strongly suggesting you should look outside the major cities for your investments.

And the Winner Is...
You can then cross-correlate rental-yield data with price and unemployment data to find the best place to invest.

Phoenix had a P/R ratio of 12.4 last year, while Atlanta's was 12.8, both more or less acceptable, since those two cities are attractive in other respects.

However, I would remind you of North Dakota's 3.2% unemployment rate, and suggest that you should at least consider Bismarck. It's too small to be on the Moody's or Case-Shiller lists, but it's a boomtown with cheap real estate at an average home price of $159,000 as of January 2011.

Note of caution: Rental real estate ownership is only for those with very solid cash flows, and should be indulged only in moderation because of the danger of over-leverage. But in the right locations, rental real estate investing can be very profitable.

Source :http://moneymorning.com/2011/07/13/how-to-find-best-market-for-rental-real-estate-investing/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules