How does one determine if their chosen area of investment is a renters market or if rentals are in demand? What are the characteristics and/or ways of evaluating your area?
That’s very easy. Join your local REIA and ask the successful landlords there. They will know better than anyone what the local rental market is like and will also be able to tell you the rents for particular neighborhoods.
You can also put a For Rent ad in the newspaper and see how many calls you get, although the REIA solution is better.
Good Luck,
Mike
There may be a problem with the REIA method since there isn’t one in my area. 
Also, when you say put an ad in the paper and see how many calls you get are you suggesting to do this before you even have a property to rent?
What is your “area”…?
You might also ask around (Realtors, the local Board of Realtors, the Chamber of Commerce, etc.) as to what the local vacancy rate is. The lower the number, the better…this area is currently running sub-2%.
Keith
Windsor Canada
I’ve contacted 3 major developers and realtors about an REIA and not one of them have any useful information which leads me to believe there isn’t one around here.
<<Canada>
Hmmmm…figures. Well, at least you’re not from Quebec! LOL
Dan,
You might have to start one! DC REIA - Kinda catchy!
Mike
Hahaha amen to that. As a matter of fact, Windsor is more American than Canadian. I think out of about 80 stations on cable maybe about 5 of them are Canadian.
I already know that the vacancy here is among the highest in all the country, however, I’m taking the approach of Sam Zell. Windsor’s economy has been hit hard in the last couple of years along with Michigan’s and I’m looking to capitalize on it.
Also, I have a theory why the vacancy is so high right now. Reading through the paper and searching for other rentals I’ve noticed that the average rent is higher than the average monthly payments for a 2-3 bedroom, 1 bath bungalow SFR (or condo etc.) in my city, even considering a higher interest rate on the mortgage due to poor credit. I believe this is a result of investors paying too much for their rental property, thus requiring a higher monthly rent to cover expenses.
I also believe that there are 2 two main reasons why people rent:
- They cannot obtain a mortgage for whatever reason, and/or
- Renting is cheaper than buying.
In my area, the first reason only applies.
Conclusion, buy at a large enough discount in order to offer renters a cheaper monthly rent that will give them both reasons to rent and not just one. This why I need to determine if the higher rent is really the problem and why I am looking for ideas on how to find out.
This is just a theory though; however, is it valid in your opinions?
PS. I like the sounds of that Mike :biggrin
I like you guy, Mike Holmes (“Holmes on Home”), though! He’s a straight shooter…
Keith
Not sure what you mean by that… :biggrin
R U agreeing with my post?
I’m a little slow right now, my brain is fried from midterms :biggrin
“Holmes on Homes” is a TV show on cable here. Mike Holmes is a GC in Canada that takes on projects that other contractors have assed up. He usually winds up taking it all apart/down and rebuilding it the right way and to code. He’s a pretty sharp guy…I think the TV show foots the bill for the fix so the homeowner gets their ‘trainwreck’ straightened out without any further cost out of their pocket…he does say “Eh?” and “hoose” a lot though!
Keith
In my area at least, advertising in the newspapers is still the most efficient means. If it is so in your area, I might get an old issue of the newpaper from the archives, say from 60 days ago, call the for rent ads, and if most of them are still for rent, then there is not much demand in the area.
You might even ask how much it was rented for. If all are rented, then the demand may be high.
Also, I have a theory why the vacancy is so high right now. Reading through the paper and searching for other rentals I've noticed that the average rent is higher than the average monthly payments for a 2-3 bedroom, 1 bath bungalow SFR (or condo etc.) in my city, even considering a higher interest rate on the mortgage due to poor credit. I believe this is a result of investors paying too much for their rental property, thus requiring a higher monthly rent to cover expenses.
Dan,
Rents are (almost) always higher than the mortgage payment. Both the homeowner and investor pay basically the same mortgage for a 30 year mortgage on the same house. Therefore, for the investor to make money, the rent MUST be higher. In addition, rents are set by the market, not by the landlord. If a landlord tries for an artifically high rental, it will remain vacant.
I also believe that there are 2 two main reasons why people rent:
- They cannot obtain a mortgage for whatever reason, and/or
- Renting is cheaper than buying.
Renters usually can not obtain a mortgage because their credit is bad. However, your number two is incorrect. Renting is more expensive than buying (in the vast majority of cases).
Conclusion, buy at a large enough discount in order to offer renters a cheaper monthly rent that will give them both reasons to rent and not just one. This why I need to determine if the higher rent is really the problem and why I am looking for ideas on how to find out.
ABSOLUTELY! It is almost always necessary to buy at a large discount if you want the property to cash flow. However, you will probably not be able to rent at a lower payment than someone would have if buying. IF you can buy low enough to set your rent a little lower than your competition, that can make a big difference in getting and keeping tenants.
Happy Investing,
Mike
I have been to Canada several times and tell people that Canada is just like the United States just different. I used to say that Canada is so much like the USA that we should just make it our 51st state. I said that to this Canadian and he said that we tried that once before…and asked me if I remembered the war of 1812. That showed me that we learn history like “they” want us to learn it. You see I didn’t learn that the war of 1812 was our attempt to make Canada part of the USA (and since it is not we must have lost). But when you think about what happened with that in mind it makes perfect since.
Check the newspapers for the area and maybe craiglist. If you know a real estate appraiser or realtor sometimes they have access to the rental comparables part of the mls to give you some avg rental values.