When you buy rental properties, the neighborhood the property is located in is extremely important. Different neighborhoods have different amounts of rent that can be charged, different levels of maintenance will be needed and different turnover rates will occur. Investors can be very successful in every type of neighborhood, but an investor must know what to expect when before buying a rental property. If an investor is basing their expected returns on a neighborhood with stable tenants and high rents, but end up with high turnover and lower rents, the returns will suffer and the investor could lose money!
If an investor knows they will have to deal with high turnover and maintenance, then they may get great returns in those neighborhoods. The trick is knowing what type of neighborhood your rental property is in. If you have lived in a town your entire life, you may have a good idea about the neighborhoods. Many people are not able to invest in the town they are most familiar with due to a relocation or expected rental property returns. How can investors unfamiliar with towns they want to invest in, figure out what neighborhoods they want to invest in?
Why can’t you trust a real estate agent to tell you about good neighborhoods?
A real estate agent may seem like the first choice for determining a good neighborhood. However, I am a real estate agent and I can’t tell my clients or anyone what a “good” or “bad” neighborhood is. If I tell someone this is a good neighborhood, it is considered steering and illegal for me to do as a real estate agent.
The reason it is illegal for me to recommend neighborhoods is because my opinion of what a good neighborhood is will be different from someone else’s. If people used my judgement to determine a good neighborhood, they would all buy houses in the same neighborhoods. If everyone bought houses in the same neighborhoods, it would push up values in some neighborhoods and lower values in other neighborhoods. This is why it is illegal for real estate agents to recommend neighborhoods.
What can a real estate agent tell you about neighborhoods?
Not only do real estate agents shy away from offering general opinions on neighborhoods. Many do not talk about crime rates, school ratings or demographics like ethnicity. It is also illegal for agents to talk about many of these characteristics. If you are frustrated that your real estate agent will not give you the neighborhood information you want, it isn’t because they are a bad agent, it is because they can’t legally do it.
Here is a great article on why you should become a real estate agent if you want to invest in real estate.
What should a rental property buyer be concerned about in neighborhoods?
Since a good neighborhood is relative to what each buyer is looking for, it is up to each buyer to figure out what a good neighborhood is to them. A buyer needs to figure out what they want in a neighborhood first. Neighborhood characteristics a buyer should consider are:
- Crime rates
- School ratings
- Home prices
- Age of homes
- Size of homes
- Size of the town
- Proximity to large population areas
- Local economy
- Type of homes (multifamily or single family)
- Tax rates
There are many more characteristics that will affect values and rent rates in a neighborhood. If you want to buy rental properties, the returns you receive are going to be determined in large part to how well you judge neighborhoods and how well you do your research regarding neighborhoods.
How can an investor decide what neighborhood is best to buy rental properties in?
The first thing an investor must do is determine what type of rental property and what type of neighborhood they want. This is one of the hardest parts of investing in real estate since every market is different, there is no set formula for a great rental property. My Complete Blueprint to Successful Real Estate Investing was actually designed to help investors create their own strategy in their own market.
Once an investor knows what type of neighborhood they want to invest in, here are some tips for determining if a neighborhood meets your expectations.
- Call the local police department. Many times the local police will tell you what the crime rates are and even tell you what neighborhoods have high crime.
- Drive through neighborhoods on the weekends and in the evening. Driving through neighborhoods will give you an idea of the upkeep of houses and traffic.
- Check websites that give neighborhood information statistics like City Data.
- Ask friends or people you know who live in the town you want to invest in. If you don’t know anyone in that town, try to meet some people! People who are not real estate agents can give you much more information on what their opinions of neighborhoods are.
- Talk to people in the neighborhoods you want to invest in. When you are driving around looking at houses and you see someone doing yard work or walking their dog, ask them what they think of the neighborhood.
It is not easy to determine what the best neighborhoods are to invest in. Each investor’s idea of the perfect neighborhood will be different based on their expectations on returns, willingness to make repairs, familiarity with a location and much more. If you don’t know a town or neighborhood well, make sure you do your due diligence before you buy.
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.