If you own an investment property or are interested in purchasing one, you probably already know how complex the real estate investment process is. To elevate your investment skill level from amateur to professional, the number one thing you need to understand is how to buy property in the “right” neighborhood. The “right” neighborhood is simply one where the investment will continue to appreciate and will attract reliable renters. Luckily, there are several simple steps you can take to help ensure your real estate investment will be profitable.
Buying in the Right Neighborhood
Here are a few sure-fire tips to help you buy property in a neighborhood that will provide a good return on investment:
1. Drive the neighborhood. It sounds obvious, but never forget to get in your car and physically drive around the neighborhood looking at houses. The key thing you’re looking for is how well houses are maintained. Are there dilapidated properties on the block? Are there any foreclosed homes nearby? Do the properties have nice landscaping? In general, are the homes in the neighborhood well maintained? Another thing you want to keep an eye out for is the number of “for sale” or “for lease” yard signs. These give you an idea of how rapidly the neighborhood is changing. Remember that a lot of “for lease” signs don’t necessarily mean the neighborhood is a great place to invest in a rental property. In fact, the opposite could be true because of the high level of competition you’ll be facing.
2. Visit the neighborhood at different times of the day. If you initially visited the neighborhood during the day, plan on returning in the late evening for another drive. This will help provide a better overall feel for the neighborhood than just visiting it once. Ideally, this will also shed some light on the type of individual who may one day rent your home. Investing in a good neighborhood with a strong community will help ensure the success of your real estate investment.
3. Drive surrounding neighborhoods. After you drive through the property’s immediate neighborhood, take some time to drive the surrounding area as well. This provides a “bigger picture” view of the community. Many new investors think if the property is in a nice neighborhood, it will attract well-qualified applicants, but that might not be true if the neighborhood is nestled amongst a broader population of neighborhoods that are run-down or have high crime rates. Consider what others see as they drive to your property as well, because the view might be negative enough to deter them from renting.
4. Consider proximity to businesses and districts. Expand your zoomed-out view of the property to see how close it is to business districts, commercial shopping plazas, and office buildings. These all impact the type of person who will want to rent and the amount you can charge. Where will renters work? Where will they shop? To achieve the best rental rates, amenities should exist within a reasonable distance without being too close for comfort. More remote locations set new pricing parameters and attract a different type of renter.
5. Compare rent prices. Just as the residents and maintenance of neighborhoods can vary greatly from street to street and block to block, so can the rental rates. Compare the rents on homes on the same street, in the same neighborhood, and in surrounding areas. Factor in the number of abandoned or foreclosed homes nearby as well, as they will drive down the cost of renting your property. Many investors fail to consider external details that help accurately calculate how reasonable or unreasonable the price point truly is.
These are just a few things worth considering when investigating homes to purchase as real estate investment properties. Is the home in the right neighborhood, surrounded by the right residents? Is the neighborhood in the right area of town, with convenient access to workplaces and shopping? And is the price right, when analyzed from every angle?
Want to know other things to look for to help you make the best return on your investment property? Download our Property Management Checklist to make sure you have all your bases covered.