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3 Signs of a Great Property Investment

June 20, 2019  //  BY Team DataTree

Prospective rental investors or landlords are understandably focused on determining whether certain buildings or homes represent good investments. While it’s a given that expenses will be incurred – the investment shouldn’t break the bank. Fortunately, there are three indicators that should be present in a great property investment: (1) location in a market with high-job growth and low vacancy rates, (2) favorable property value indicators and (3) location in a desirable rental sub-market.

1. More Jobs, Fewer Vacancies

All other factors being equal, properties located in areas with high-job growth and relatively low rental vacancy rates represent potentially good rental investments. That’s due to new workers often needing to find a place to live relatively quickly, which typically means renting rather than buying a home. Likewise, workers starting their first jobs are unlikely to be in the market to buy a home.

The U.S. Department of Labor Bureau of Labor Statistics (BLS) produces two regularly updated reports that help prospective investors ascertain the job growth and employment rate of particular markets. The State and Metro Area Employment, Hours & Earnings report provides non-farm job-related statistics for all 50 states, plus Puerto Rico, the U.S. Virgin Islands and approximately 450 metropolitan areas. The Quarterly Census of Employment and Wages report publishes wages for more than 95 percent of all jobs across the United States by industry at the county, Metropolitan Statistical Area (MSA), state and national levels.

The HUD Aggregated USPS Administrative Data on Address Vacancies database is also available to registered users and includes vacant properties and properties under construction and is updated every three months. This information can be cross-referenced with BLS job-related data to provide insight into the relative job growth of an area in relationship to available rental units.

2. Good (Property) Value for Money

The condition and financial aspects of potential rental investments are also important considerations. Conducting due diligence research allows investors to avoid properties with legal encumbrances such as liens. Collecting sales comparable data minimizes the risk of purchasing overpriced properties.

DataTree Property Detail Reports provide comprehensive information about a particular property, including zoning, flood information and assessed value. Tax Status Reports provide present property tax obligations and past year tax delinquencies, if applicable. DataTree Sales Comparables Reports include basic information such as number of bedrooms, baths and total living area along with the previous sales price and sales prices for up to 50 similar properties.

3. Location, Location, Location

For real estate professionals, the three most important aspects of a given property are location, location, location. Depending on the market, there are several factors that determine whether a potential investment property is in an optimal location. For instance, in a university town, rental residences located within walking distance of campus command premium rents. In a working class town, rental single-family homes and multi-unit apartments located near a highway or public transportation are viewed as more desirable for renters.

The value of potential rental investments are also impacted by neighboring properties. DataTree Neighbors Reports include information on properties in close proximity to a given residential or commercial building. The report also allows users to filter features such as busy streets. Multi-Property Statistics Reports provide 12 rolling month statistics for a selected group of properties along with a summary analysis of the entire group of properties.

Identifying a Great Rental Property Investment

Properties are typically categorized as A-, B- or C-class properties. A-Class properties are top of the line. They are often newly built and command premium prices. B-Class properties are well maintained and frequently located in desirable areas but often older than A-Class properties. C-Class properties nearly always need work and are often located in less desirable areas.

B-Class properties often represent excellent investment prospect for new landlords. By contrast, C-Class properties are often better prospects for experienced investors who are either licensed contractors or have established relationships with contractors. Likewise, although A-Class properties carry a higher value, the required up-front investment may be beyond the means of new investors.

Regardless of whether it is designated as A-Class, B-Class or C-Class, an investment property should be a money maker with the potential for generating at least modest profits, rather than a money pit. The three factors discussed above can help prospective and seasoned landlords alike identify commercial buildings and residences that represent great property investments. 

DataTree provides a suite of innovative tools that facilitate the evaluation process of prospective rental investments. Discover how our solutions can uncover ideal commercial and residential rental prospects by registering for a complimentary trial.

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