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Why Are Some States More Attractive to Investment Property Owners?

Posted On Monday, 19 June 2023 19:33
Why Are Some States More Attractive to Investment Property Owners?

When buying properties as real estate investments, most Realtors or real estate experts, if not all, will tell you that location is the most important consideration if you hope to realize a consistent return on your investment. Not everyone who invests in rental properties will agree as to which state has the most to offer, but there are several key metrics that every investor will look for before deciding. These include:

Population increase

Any state that has a growing population merits interest, as it stands to reason that there will also be an increase in the demand for housing. Shrinking state populations may indicate a weak economy that can negatively influence the housing market. Smaller populations equal a smaller rental market.

High occupancy rates of rentals

These statistics indicate how many available housing units are vacant. An increasing percentage of properties occupied by renters illustrates how appealing the rental market is in any given state. It is also a commentary on the affordability of the local market, the convenience of renting as opposed to owning, lifestyle choices and amenities, and the potential for continued growth.

Low property taxes

Expenses are an important part when evaluating an investment. There are no states without property taxes, however, lower property taxes contribute significantly to the return on a property investment as well as a property’s net cash flow. Several states do boast low tax rates such as Alabama, Hawaii, and Louisiana while others like Texas or New Jersey are on the higher end of the tax spectrum.

Increasing property prices and home value

If a state has rising property prices this translates into market value appreciation. Serious investors will also evaluate the median annual home value increase.

Increasing employment opportunities

When the job market grows, population shifts follow. This is one of the prime incentives for potential renters to choose one state rather than another. Many potential renters move to a state for a new job. States that can boast job growth are potential goldmines for property investors.

Affordable rental costs

A location that offers affordable housing can keep ROIs coming accounting for increasing equity and long-term profits. An attractive state to invest in will be one that offers affordable prices that are just beginning to increase. States with peak median prices are not ideal as investments.

Overall cost of living

States that have a lower cost of living than the national average can be popular choices for renters with limited incomes such as numerous families or retirees.

State regulations 

Knowing what is required of homeowners in a state can be a deciding factor. Undoubtedly, states with legislation that favors landlords whereas most states tend to be tenant friendly. Regulations that include quick eviction procedures when dealing with bad tenants can be an important consideration to include especially if tenants don’t pay their rent. 

Another thing to consider is the possibility of short-term rentals in states that have Airbnb rules. States that protect the rights of Airbnb investors or hosts merit attention.

No specific set of criteria exists that will guarantee which state will offer the highest return on property investments, key statistics within a state afford an investor to determine the viability of a property investment.

Finding the best state to invest in property

Many investors will opt for out-of-state property investments due to a saturated local market, costly local rentals, or simply to take advantage of lower-value markets that have incredible potential for employment and population growth. 

Finding a real estate market that offers lower taxes, housing prices, and general costs can produce higher returns on investments.

Once investors identify the best locations to invest in, then the research switches to the local level. This is important because some states may appear attractive in general, but within each state, there will be underperforming and over performing towns and cities hidden within state statistical averages. One example might be people moving to suburbs to avoid high urban costs or the opposite with the suburbs being more expensive to live in.

Attractive states will feature some great investment property locations as well as poorer investment options. An attractive state to invest in is only the first step. It needs to be followed by narrowing down options by city or town. Thorough research will aid in determining a great location that permits investors to maximize returns.

The bottom line

When looking for an attractive state, good research is the key. Evaluating the state’s rental demand, median home, and rental prices, together with employment rates and recent population growth and potential. Areas with higher growth and lower costs have greater potential for significant ROIs.

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