With the national economy slowing down (yes, it is), and the Fed promising to raise interest rates, investors may want to take a step back from their current investing strategy and consider their options. Use this information when researching markets.
On the one hand, there are markets where housing remains tight and home prices are both high and still rising, such as California. In these markets you can establish a rental property by splitting a single-family home into multiple units or you can buy one already split. In most cases, this is the only way to invest in rentals in a market like California’s because the rent (not to mention your ownership costs) is just too high to rent out an entire home to one tenant. However, while both options may seem streamlined, they will take some time which could hurt your bottom line.
In the first case it will take a year to do the work to split the property in two units before you’re ready to rent; in the second, you’ll be paying top dollar for a rental stream that could be sharply affected if the local boom cools. On the other hand, there are markets where home prices are still recovering (Florida, the Midwest) and the relatively higher rents make straight single-family rentals very attractive.
Best Market Options
The low home prices, however, at this stage of the recovery, signal fairly weak local demand: You may easily find renters, or not. Both strong and weak markets are less attractive as a slowing economy threatens to diminish demand for housing. At this time, it may be best to consider investing in markets which are neither in boom nor recovery mode, where home prices are rising but still low. Places where the ratio of prices to rents means you don’t need to split a property, and where the local economy is still solid. Local Market Monitor has sifted 320 markets to come up with the 20 listed here. They won’t be immune if the national economy slows further, but they offer a lower-risk opportunity in single-family rentals.