Durable Income from Rentals
Here are a few of the factors that I consider when purchasing a rental property. This isn’t a comprehensive list by any stretch but it’s a little more reassuring to know some deeper factors in a market or area where I’m making a commitment.
Population changes – There are some online sources that have used census data to show what the population trends have been in the past 10-20 years. Now, there’s a new census coming and we’re hearing about more and more people moving to Maine so there are some bigger variables at work in 2020 and likely into 2021 but I’m watching these trends to see where inventory will get more pressure with people deciding to make a move. For example, Bath Iron Works is in a big hiring push. If you’ve got a foothold in Bath, Maine right now you can add a couple of security points. But be careful, there are a lot of proverbial eggs in the BIW basket so over time, the effect of one company’s success can add some risk.
AMI and the ⅓ rule – AMI or Area Median Income is fairly accessible with a quick online search. It’s the median income of the population of any given area. This is useful to know because you’ll be able to estimate what an average household should be able to afford for rent using the same ⅓ formula as lenders. For example – in 2020 the AMI for a household in Portland, Maine is $51,000. This means that a good estimation of their annual expense on housing should be around $17,000. Divided by 12mo, is a little over $1,400. So, the bulk of households in Portland should be able to pay $1400 per month for their housing. That’s your target rent amount.
If you’re interested in owning section 8 or subsidized income properties this information is considered heavily in the formula for housing assistance so it’s useful to know.