Even if you don’t invest in real estate (yet!), you likely have heard that location AKA your real estate market is the most important factor. This may be a bit overstate in my opinion (more on that at the end of the post), but choosing the right market is a super important step in the process. And going about it can be daunting. The important thing is to learn the ropes and make a decision without falling prey to analysis paralysis.
In this post, Ian Cook of Carpe Diem MD shares his thoughts on how to make sure you are choosing the right real estate market in this week’s PhREI guest post! His analysis takes the short-term rental spin. However, I think it’s largely applicable to long-term rentals as well.
P.S.: For an overall refresher on real estate investing for physicians, check out this post!
Take it away Ian!
How to choose your market? That is the question…The answer? That depends on “why” you are investing in short-term rentals.
If you are investing in short-term rentals for pure cash flow then the location of your market does not matter and you should approach this venture surgically and without emotion.
1. Search Mashvisor and Airdna for a list of the most profitable short-term rental real estate markets
I prefer Airdna.
2. Pick the most profitable real estate market
3. Research the neighborhoods and local laws of your chosen real estate market
This step is very important when researching a market because zoning and regulations can vary significantly between markets.
For example, in some markets condos are the only properties allowed to offer short-term rentals. In other markets, you can only own one short-term rental property. So if you are looking to scale in one market than you want to look elsewhere.
Also, if you are set on owning a home then don’t choose the “Condo only” market. Realtors will know the local regulations but you can also easily look up the regulations with a Google search.
4. Develop a STR or LTR purchasing team
Mortgage Broker: Do your research and choose a mortgage broker. Make sure to get pre-approved so you can move quickly on a property that meets your purchase criteria. Your mortgage broker can be local but should be licensed in all 50 states to allow you flexibility in your market choices.
Finding a great mortgage broker is important because they will be a crucial member of your purchasing team. They will be responsible for locking your interest and getting your loan approved. Developing a good relationship with your broker will improve your ability to act quickly in this competitive market.
Agent: You will want to look for a Real Estate agent that understands the Short-Term Rental market and preferably one that owns a STR as well. You might have to interview a few agents before finding one that meets your criteria.
An agent with STR experience can be invaluable if you are planning to self manage. They will have referrals for handymen, cleaning services, and contractors for those of you looking to self-manage. Your agent will also be able to give you information about the various property management groups in your market if you are not interested in self-managing.
5. Make your purchase and begin to prepare for your property set-up
6. Apply for a business license and set up your booking sites if you are self-managing. If you are not self managing then interview a few property managers before selecting your new property manager
NOTE: To maximize your tax savings you will need to self manage and that will be more challenging the further you are from your property…. NOT impossible just more challenging. When researching your long distance market make sure to confirm that you can contract with a cleaning service and handyman without a property manager. YOU are the manager. IF you hire a property manager to manage the property then you will not qualify for the tax savings available to STR businesses.
7. Enjoy your short-term rental journey in your chosen real estate market
The other way to research and choose your real estate market is to select a market that you visit frequently and enjoy
This is my preferred way to select a market. By choosing a market that you enjoy you are confirming your own market research. You know what guests will be willing to pay to stay at your place because you know what you are willing to pay.
In addition, you know the town and neighborhoods because you have actually stayed over night in your market. There are lots of small things that numbers and calculations don’t always pick up. Sometimes the difference between a great STR and an O.K. STR is the location being one street closer to the slopes.
The best part of choosing a market based on enjoyment is that you can use the property. Sometimes the best investment is an investment in yourself and family.
I love Ian’s analysis here and I really do think it applies to long term as well as short term rentals.
One could argue that his last point does not apply to LTRs. But if you invest out of town with LTRs, you will still likely want to visit them every once in a while to check in. Might as well enjoy where you have to visit!
My last point is just that some people get really too caught up in choosing a market. You want to do it in a systematic and researched manner. No doubt. But, at a certain point, you have to jump in and just make a decision.
And the reality is that there are good deals in all markets at all times. It’s about setting your criteria and following it until you find the right deal for you. Luck favors the prepared. Heck, most publications listed Buffalo, NY as one of the worst markets to invest in. That didn’t stop me and Selenid after our research demonstrated otherwise. We are well invested with a cash-on-cash of over 22% in the market!
What do you think? How did you choose your real estate market? Do you invest in long term or short term rentals? Or both? Are they all in the same market? Let me know in the comments below!
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