How to Identify Strong Real Estate Markets for Your Next Investment

When looking for your next real estate investment, location should be one of the most important selling points for each potential market. Fortify your existing portfolio, or expand into new territories after doing thorough market research into what makes a good home for your next real estate investment.

This article will equip you with the knowledge to identify strong real estate markets, maximize your return on investment and choose the perfect location for your next property.

Related: The Top 6 Factors Affecting Investment Property Value

What should I look for?

There are a few methods that investors utilize to identify the best real estate markets for their next investment.

The best markets for real estate investing have high rental demand —this could mean that there are a lot of young people or other demographics who are in transitional phases of their lives. When looking for spots with high rental demand, keep in mind that people looking to rent typically are under the age of 35. Areas that have college students or young professionals could be strong contenders for the location of your next rental.

High rental rates are another thing to consider as a potential investor. It’s a good idea to seek out areas that are not hindered by rent control. If you can find spots that have steadily been increasing their rental rate each year, those areas will have a higher chance of getting you the best return on your investment. Towns with new businesses or large corporations moving in are a great opportunity to see an influx of renters and skyrocketing rental rates.

Other things to look for include lower interest rates and affordable home prices. Keep in mind that landlord-tenant laws vary by state, so settle in a state that has laws that benefit you as much as possible.

Overall, you want to look for real estate appreciation over time. Properties that are in good markets will retain their value and increase that value year over year.

Related: Want to Invest in a Rental Property? Do These 5 Things First.

Zooming out

Besides the general guidelines listed above, what are the macro factors that investors should be aware of before purchasing a rental property?

The economy:

It’s important to consider the overall health of the economy when purchasing an investment property. Employment data, the GDP and prices of goods will indicate whether the economy is in a good place or not. If the economy is not doing well, chances are the real estate market isn’t either.

Government policies and subsidies:

The government has ways to temporarily boost demand for real estate. They complete this by providing tax credits, deductions, subsidies and other government incentives that could change the supply and demand of the market.

These government incentives can create false trends. Without proper knowledge of why demand for real estate is booming, investors may falsely assume that the interest is here to stay when in reality, it is fleeting and due to a government initiative.

Neighborhood plans:

Are there plans in place for new amenities or infrastructure in the area? Green spaces, sidewalks, parks, retail stores or new methods of public transportation could have a strong impact on whether there will be increased interest in the neighborhood.

It’s also a good idea to consider whether the current amenities in the neighborhood indicate success for your rental business. Consider your ideal renter — what kind of neighborhood do they live in? Does the neighborhood you’re considering have all the elements you just thought of? If not, are there plans to add them in the near future?

What are people saying?

As with any business, networking and connecting with experts in the space is a great way to expand your knowledge of the area and real estate in general. Get to know real estate agents, developers and other experienced investors who have had success in the areas that you’re considering. Ask them if they have any advice for you, and take their tips into consideration when buying your next property.

Related: Smart Investors Know These 5 Rental Property Secrets

U.S. cities with strong markets

Lately, smaller midwestern and mid-Atlantic cities have become promising real estate markets. Whereas historically growing markets have focused on the Sunbelt, cities with house prices that are closer to the national median are now becoming more popular.

Here are a few of the best markets to invest in real estate in 2024:

1. Raleigh, NC

2. Charlotte, NC

3. Memphis, TN

4. Columbus, OH

5. Atlanta, GA

While this list is far from exhaustive, it could potentially guide your searches for strong real estate markets and give you a starting point for your research into specific neighborhoods.

When looking at these cities, you should also ask yourself some personal questions to see if the city is right for you. Are you located close to the market? If not, do you have existing and trusted contacts in that city, like a property manager or maintenance contractor? Are you able to travel to that city a few times a year? If you do live close to your potential market, consider the property tax rates and the market’s overall trajectory based on the metrics discussed above.

Any decision regarding your real estate business should be met with extensive research and lots of planning. While it’s important to note that every investment involves some level of risk, if you do your due diligence and take all the tips above into account, you will have a higher chance at success.