The location of a rental property is a major determinant of a business’s success, which is why real estate investors factor that into their decision. You have to decide early on whether you want to invest in a property in the suburbs, the metropolitan area, or other locations that might have an untapped market.
If you’re thinking about purchasing real estate in the metro area, there are a couple of advantages you’ll be glad to know about.
Key Highlights:
- Metro properties offer consistent tenant demand due to proximity to jobs, amenities, and public transport, making them ideal for reducing vacancy risks and maintaining stable rental income.
- Rentals in city centers command premium prices and tend to appreciate faster, offering better long-term gains for investors compared to suburban or rural areas.
- Tenants benefit from reliable public transportation and nearby essential services, while landlords enjoy easier access to maintenance and property management vendors.
- Metro areas attract professionals, students, and couples seeking smaller units, allowing landlords to target various demographics and maintain steady occupancy.
- Despite strong advantages, metro rentals come with downsides like high property prices, greater competition, tenant turnover, faster wear and tear, and economic volatility.
Consistent Tenant Demand
Metro areas are always bustling with people from all walks of life, seeing as it's where you find the base of operations for many industries. That’s exactly why demand is consistently high, and you’ll always find tenants who need a place to live in to be close to work or amenities. This is the safer option for those who want to avoid significant vacancy rates.
Higher Rental Rates
Rental properties near or in the city centers often fetch a higher rent price, mostly because of the convenience. Proximity to major establishments is something tenants are willing to pay a higher rent price for, compared to suburban or rural areas. Of course, you still need to research comparable properties to ensure that you’re setting the right price.
Reliable Public Transportation
Since it is a highly populated area, you can expect more public transportation options for your tenants, such as buses, trains, cabs, and other modes of travel. This increases tenant satisfaction and makes your property more desirable due to accessibility. The closer it is to transportation stations, the better.
Diverse Tenant Pool
Assuming that you invest in a multi-unit rental property, which is often what real estate investors go for in metro areas, you will have a diverse tenant pool who are looking for smaller rental units instead of a single-family home, such as young professionals, students, or couples without children. You may need to tailor your amenities based on a specific target market, but most apply to tenants who are generally looking for a smaller space.
Proximity to Services
Property management is a lot easier when there are several accessible amenities for whatever you need, such as repair services, cleaning services, and other vendors you need to maintain your rental property. It also contributes to quicker service since they’re nearby, which means your tenants won’t have to deal with issues for long.
Quicker Property Appreciation
Since metropolitan areas generally continue to improve over time through new businesses and entertainment scenes, your property value will likely increase in a short period of time. In rural and suburban areas, developments are not guaranteed, and they may even be susceptible to declines in the neighborhood.
Better Market Visibility
Many rental searches and online listing activities are pointed to metro properties, so you’ll have less trouble finding potential tenants for your rental. It reduces your marketing expenses as well, since it won’t take as long to find applicants. Vacancy will rarely be an issue, especially if your rental property stands out and is better than similar properties in the area.
What Are the Downsides to Investing in Metro Rental Properties?
- High Property Prices: Real estate in the city will cost more than other properties, simply because of where they are located. You will need a larger upfront capital, along with higher financing costs.
- More Competition: You won’t be the only person who thinks that a rental property in the metro area would be profitable, which means you’ll have to deal with competition. There are more than enough tenants to occupy most rentals, but you have to make sure yours is more appealing to attract tenants.
- Tenant Turnover: The tenant pool in cities often prioritizes career or lifestyle, with them being young professionals and students. Families who prefer single-family homes often set down roots, pointing to long-term tenancies.
- Greater Wear and Tear: High occupancy rates and the pollution that often comes with populated areas may speed up the wear and tear of your property. Even frequent turnovers can leave your walls and floors scuffed or aged.
- Market Volatility: Many of your target markets will mainly rent units in the metro area for jobs, and your occupancy may depend on the current economic conditions. Mass layoffs or increased prices may urge your tenants to find cheaper places to live elsewhere.
- More Expensive Insurance Premiums: With increased risks like theft, vandalism, natural disasters, and turnovers, your insurance costs will be pricier than the average. Seeing as insurance is necessary to protect your investment, this is a cost you shouldn’t opt out of.
Metro Area Rental Properties FAQs
Is it harder to buy property in metropolitan areas?
- Generally, yes. Metro properties have higher purchase prices and financing costs compared to suburban or rural areas, making them more capital-intensive.
Who are the typical tenants in metro rental properties?
- Most tenants are young professionals, students, and small families seeking affordable and convenient housing close to workplaces and public transit.
Are metro rental properties suitable for long-term investment?
- They can be. While purchase prices are higher, consistent demand, faster appreciation, and stable rent income make them valuable long-term assets.
What risks come with investing in metro rental properties?
- Key risks include market volatility, high property costs, strong competition, higher tenant turnover, and faster property wear and tear.
Do rental properties in the metro area appreciate faster in value?
- Typically, yes. Continuous development in metropolitan areas, such as new businesses, transport systems, and entertainment hubs, drives faster appreciation.
How can landlords stand out in competitive metro markets?
- Offering modern amenities, eco-friendly upgrades, flexible lease terms, and well-maintained units can help attract quality tenants.
Secure The Profitability of Your Investment
Once you purchase an investment property based on your research and business plan, the real work begins. Efficient property management is required for your rental property to thrive, and anything less may result in negative cash flow. Worse, you could even lose your property.
Everyone could benefit from a little help when they’re just starting, especially in business. If you feel as though managing a rental property, especially a multi-unit one, is a bit overwhelming, you can count on companies like Precision Realty.
With our resources and expertise, you will start getting returns on your investment in no time! Contact us and discover how we can help you.
