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How to Find the Best Market for Rental Real Estate Investing

The weak U.S. housing market and high inflation, despite their negative effects on the economy have actually created a promising opportunity for rental real estate investing.

Truth be told, we're not going back to 69% homeownership rates anytime soon. With mortgages steadily harder to obtain, more would-be homeowners are renting.

This heightened rental property interest has given landlords more power - which means rent prices are going up and are likely to continue doing so. The national average rate for home and apartment rentals has climbed 6.7% from June 2010, according to housing search engine HotPads.com, and analysts expect another 3% jump in 2012.

Inflation is here and likely to increase, which will also push rents higher.

Overall home ownership cost is exceptionally favorable - even if home prices have a little further to fall - since long-term interest rates are currently near all-time lows. Prices in many markets have already dropped far enough that rental yields are quite juicy, especially compared with interest rates.

When choosing where to invest in rentals, my first recommendation - unless you know a local agent in whom you have great confidence - is to focus on the area in which you live. As I have discovered (to my cost), rental real estate can be a mass of minor crises and costs, which are very difficult to deal with for a small investor who is not on-site.

However, that's not always possible, like for those unlucky enough to live in big-city California or Detroit, two areas where rental real estate is unattractive. I would say there are three main criteria you must evaluate when selecting an area to invest in:

  • Employment.
  • Price trends.
  • And rental yields.
Looking at each we can narrow down the best rental real estate market in the United States.



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