The best rental home purchase you can make right now

The best home purchase you can make right now has a number of features. At the same time, many houses that investors are convincing themselves may not be a bad deal could, in fact, be terrible investments. The question is what to look for and what to avoid. Also, once you know what to avoid, how do you rate, what should you choose?

First, very large houses far from the city center may not be a good buy at almost any price. Demand will be weak for years and may never recover. With smaller families with successive years, the problem becomes even more important, as a large house may never be justified. Speaking more specifically, avoid the following:

• Stay away from more remote suburban communities in cities like Washington, DC, New York City, Chicago, San Francisco, or Los Angeles;
• Stay away from mid-tier cities unless they demonstrate strong government support, are well positioned for distribution, or are port or border entry points. Good candidates for investment include the Defense Department’s Base Realignment winners or the growing port city of Wilmington, North Carolina;
• Stay away from markets with artificially high costs of living due to environmental conditions. This could include some larger cities in more arid areas but without the appropriate opposite advantages (climate, access to recreation, etc.); and
• Stay away from large single-family homes unless they offer excellent access to employment, transportation, shopping, and entertainment.

Then, in general, focus on major cities (Los Angeles, Washington, Miami, Atlanta, etc.) closest to your core areas, great access to public transportation, great access to employment, great access to entertainment and shopping. Next, for the immediate future, focus on townhomes, condos, and apartments. Very large single-family homes zoned to be redeveloped for multiple tenants and near focus features could also be a very good investment.

Having made these choices, the next step is economic viability. Understand the expected expenses for the area, ensure you pay the correct capital price, manage the level of leverage, and investments in this environment will deliver superior returns.

Investors who carefully measure and select where they will buy, then effectively use the buying criteria within those areas, and ultimately qualify and successfully negotiate deals within the parameters outlined may find the next decade extremely profitable due to the momentum that some of the trends could have in value per square foot of housing.