Where Is the Best Place to Buy Investment Property?

Susan Weber
Owning rental property can be a good investment.
Owning rental property can be a good investment.

Wondering where is the best place to buy investment property? Finding property in an area with the potential for rising property values is important; however, you may be surprised at some of the other factors that you should also consider.

Know Your Investment Goals

Your investment goals will have a lot to do with where you purchase your investment property. For example:

  • If you are a beginning investor with one rental property: You may increase your chances of successful investing if you purchase the rental property in an area close to where you live. You will know the good and bad areas of town and you will be close to your rental property to provide maintenance and management.
  • If you own several rental properties: A more experienced investor with multiple properties might not feel the need to personally manage their property. They may be comfortable owning property that is located away from their home, using a management company to provide them with reports about the property and the tenants.
  • If your plan is to purchase property, renovate and flip it: You will want to locate property where you or your real estate agent have an excellent awareness of what's on the market and the market value of surrounding properties.
  • If you plan the hold the property for a long period of time: You will want to investigate the planned development in the area to make sure that the property will continue to be in a desirable area.
  • If you plan to purchase the property to live in: Your location decision will be largely based on where you want to live, combined with the potential for the investment to grow in that physical location.

Where Is the Best Place to Buy Investment Property Now

Selecting the location of potential investment property is dependent upon several factors:

  • The real estate market
  • Where you live
  • Where you can get financing
  • The potential to make money on the investment property in a specific location

Look for Increasing Market Values

As with any investment, the watchwords are to buy low and sell high. You want to find a market area where the base values of the properties in that area are increasing, regardless of whether any improvements are made to the property. Property values can increase for a variety of reasons including:

  • Inflation
  • New low cost housing built in a desirable area
  • Shortage of a specific type of property (such as a limited number of small, starter homes)
  • Planned development in the area (such as a new highway to quicken the commute, a new park, a new shopping area, etc.)
  • New employment coming into the area which will create a need for more rental housing

Buy Where You Live

Buying investment property in an area where you live gives you the opportunity to use your everyday knowledge to make a smart investment decision. You can use the same knowledge you have about your surroundings to reflect on potential opportunities for your real estate investments.

  • Your knowledge of high crime areas or streets prone to flooding can save you from a potential problem down the road. Knowing where the good schools are might make a difference in attracting good tenants and selling the property later.
  • Reading about an approved building project or a new employer coming into your town will give you advance knowledge of changes that could bring a positive influence on property values.
  • You know where to go to get repairs and maintenance help.
  • You are close to the property in case there is an emergency.

Buy Where You Bank

Mortgage rates will trend up and down; however, one factor holds true. Your ability to get financing on your investment property may improve if you apply for a loan through a financial institution with which you already have a banking or lending relationship. That's not to say that a $100 balance in your checking account will guarantee you a $350,000 mortgage loan. However, your status as a customer may get your loan reviewed faster, while non-customers wait for the review of their application.

Run the Numbers

Understanding the full costs of the investment can affect where you purchase property.

  • High vacancy rates in the area can make it more difficult to get the property rented and to keep good tenants.
  • Higher property taxes in one county can reduce the profitability of a piece of property.
  • Tough building codes in a specific city can result in added building fees to upgrade a property. Be sure to consider all costs of the property purchase, maintenance and management in city in which the property is located. You may find that the housing market is good, but the increasing value is not enough to offset the high taxes and building fees.

It Takes More Than a Map

Carefully evaluate your options when determining where is the best place to buy investment property. The answer takes research and analysis. The results may pay off in increased investment profits.

Where Is the Best Place to Buy Investment Property?