When you invest in rental property to hold over the long-term, it’s important to look at the big picture and take into account the growth and demand for rental property in different real estate markets in the U.S.
Here are some of the key criteria that many investors believe can make a place good for rental property:
Home value and median price indexes published by the National Association of Realtors (NAR) and Zillow because higher housing prices can indicate a strong demand for rental property
Growth in housing prices year-over-year and projected future price increases indicate how much property could appreciate.
Historical annual growth in rents is a source used to help predict future increases or decreases.
Rent index indicates whether rent increases are faster or slower than the rate of inflation, and also shows the supply and demand conditions for rental housing.
Unemployment, job growth, and population growth rates indicate how strong the local economy is and the potential demand for housing.
Cap rate (also known as rental yield) measures the rate of return you receive from income property in different markets, although markets with high returns may not always be the best if economic conditions are declining.
Gross rent multiplier (GRM) compares gross rental income to property price, and the lower the GRM the quicker you will be able to pre-pay the mortgage own the property free and clear.
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