Investment location is so important because the way your rental property performs depends on the housing market it’s in. Being a successful real estate investor is a tough thing to accomplish if you’re not investing in the most profitable locations. And with so many real estate markets to choose from, investors need to know where to start their search.

Real estate investing is local, but there are some big picture criteria that you need to consider before choosing a specific city or neighborhood in a state. Obviously, a profitable real estate investment would be one in a city where rental rates are high and vacancy rates are low. However, there are other key state-level elements you need to factor in before deciding where to invest in real estate. And because the US housing market is so large, finding the best places to invest in real estate could be difficult if you don’t know what to look for. That’s why this blog is going to tell you what the best state to invest in real estate looks like.

5 Features of the Best State to Invest in Real Estate

Here’s what makes for the best state to invest in real estate.

1) Population Growth and Job Growth

More often than not, the higher a state’s population, the better your chances of success with your rental property. The population size is actually one of the most important traits of the best state to invest in real estate for a buy and hold investment strategy. That’s because a shrinking population could be a sign of economic weakness, and a bad economy isn’t good for any housing market. But the most direct impact it’ll have on your buy and hold rental property is fewer renters. Smaller population= smaller renter pool. That’s definitely not what any real estate investor wants.

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The best state to invest in real estate is one experiencing net positive migration across multiple healthy and thriving cities. This means more people are moving into the state rather than migrating out. People tend to move to certain states because of job opportunities. Regions with job growth are gold mines for rental property owners. If there’s something the state has to offer to attract tenants, that’s where you want to be.

Related: Why the Best Cities for Tech Jobs Can Be the Top Cities to Invest in Real Estate

2) Affordability and House Prices

There are many reasons someone opts for out-of-state real estate investing. A location with cheap houses for sale is as good as any for a motivated property investor. When looking for the best state to invest in real estate, check out the house price trends. Are property prices going up or down? At what rate?

Nearly all housing markets in the US took a blow after the 2008 recession. Research how quickly the markets you’re interested in recovered and where housing prices are at now. The best state to invest in real estate right now is one where home prices have yet to fully recover but are beginning to go back up. You don’t want to invest in a market where the median house price is at its peak. You also don’t want to wait until a market becomes the “hot spot”, because this means everyone is already competing for property there. You want to keep track of key market trends so you can spot real estate investment opportunities before anyone else.

Having accurate and reliable real estate data is key to getting ahead of the competition. Imagine knowing exactly where to find affordable real estate, how much inventory is currently on the market, whether it’s a buyer’s market or a seller’s market, and knowing key measures like median property price, days on market, and price to rent ratio. Well, Mashvisor’s real estate investing blog has pieces covering that kind of state-level data and more. You’ll also find blogs with data like this for cities all across the US housing market. If you want access to neighborhood data, tools for a real estate market analysis or an investment property analysis, start out your 14-day free trial with Mashvisor now. 

Related: What Are the Best States to Buy Real Estate in 2019?

3) Property Taxes

Owning a profitable rental property isn’t only about the rental income. You need to be mindful of expenses too. The goal is to maximize return on investment (ROI) and minimize expenses. Property taxes are a significant part of operating expenses and are based on the assessed value of investment properties. Property taxes differ from state to state and city to city. Although states with no property tax don’t really exist, there are states with very low tax rates (Louisiana, Hawaii, Alabama). And then there are states with some of the country’s highest tax rates (New Jersey, Texas, Illinois).

The best state to invest in real estate can’t be chosen based on one factor like taxes. Instead, it should be based on a combination of factors. One market might have extremely low taxes, but the same can be said about the rent. So you want to consider how high or low the taxes are relative to other factors like rental rates.

Related: The Best States With No Property Tax for Real Estate Investing

4) Landlord-Tenant Laws

Ultimately, the best state to invest in real estate is one with laws that favor landlords. There are landlord-friendly states, but most states have legislation that favors tenants. We’re not saying tenants need constant strict regulation, but sometimes a quick eviction process is the only way to deal with bad tenants. If you’re planning on buying a rental property anywhere, you need to know what your legal options are so you’re prepared to take action if you have tenants constantly missing their rent or damaging the investment property.

Related: Invest in Real Estate in the 5 Most Landlord Friendly States

5) Airbnb Regulations

This one’s key for any investors in the short term rental industry. Investing in an Airbnb-friendly state could save you from headaches and strenuous regulation down the road. You can’t just look for cities with high tourism rates because now there are strict short term rental laws popping up in all different parts of the country. Now, most local markets do have their own legislation, but the best state to invest in real estate is one that’s placed laws which protect the rights of Airbnb hosts/investors. Usually, you can tell how difficult operating an Airbnb in a certain city will be if the state has already banned any restrictions on short term rentals.

Do you have any real estate markets in mind? To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.

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