Property taxes can take a huge bite out of real estate investment profits. It makes sense to take current property taxes as well as historical property tax data into account when choosing where to invest. Looking at historical property tax rates can indicate a cycle of upward or downward mobility in the local area. Historical property tax data is a general indicator of typical market conditions.
For instance, in Dallas County, property taxes have stayed level since 2010, which is a good sign of market stability. Current property tax rates always need to be included in an investor’s budget planning, preferably before other decisions are made about a property, including the choice to invest or not. Remember, investors can take advantage of a full write-off for property taxes on rental properties come tax time.
Home investments are affected by the local economy.
The local economy is another key element of general market conditions. It stands to reason that a burgeoning economy will help make it possible for renters to get and keep a job, pay rent on time and take care of daily upkeep requirements for the rental property, like putting gas in the lawnmower and buying replacement furnace filters. On the flip side, economically challenged renters tend to skip or be late with rent payments and may lack the time to care for the house.
Local economic conditions can and should be researched to get a picture of the financial stability of the renter pool. For example, in Missouri, the average wages are very positive as compared to the national average. At the Bureau of Economic Analysis, home investors can get data on the location of the investment. I have found that by investing in true middle-class neighborhoods, my investments perform much better. On the flip side, I have found that any time I buy way below median value in any market, my risk greatly increases due to the rental pool for that market/area.
Home investors need to understand the renter pool.
To market to and attract an appropriate renter — one who will appreciate and care for the quality of the rental property and who can afford the rental rate — the home investor needs to know the demographics of the renter pool. This market information can also be helped to guide decisions about renovations and improvements. Making a home investment property attractive to retirees will be different than staging it for single professionals or young families. In Houston, for example, the median age of residents is just 33 years, which may indicate that starter home rental properties could be very lucrative for home investors.
In paying attention to all market indicators, home investors should arm themselves with as much information as possible about the region by accessing local government resources and books and other tools about home investing in general. This will set you up for great success with your real estate investment portfolio.