Every real estate investor may face a dilemma when buying an investment property to rent out. From one side: “Should you buy a rental property that is really cheap?”. From another: “Should you buy a rental property in a bad location if it is cheap?”. Many investors argue that in order to make money, you should only invest in the best rental investment locations. However, is it always the case… and should you buy a rental property in a bad location if it is cheap? Keep on reading to find out!
#1 How to Find a Rental Property in a Bad Neighborhood
The methods remain the same as when you are searching for the top investment property locations. Basically, you will need to go through conducting a real estate market analysis as well as investment property analysis. However, what should you do to skip long hours of conducting a neighborhood analysis? In order to find out where to invest in property, make sure to use Mashvisor’s rental property calculator.
- Mashvisor’s Rental Property Calculator
A rental property calculator is a real estate investment tool which provides investors with basic financial analysis, when planning to buy a rental property. Therefore, the rental property calculator removes the need to conduct real estate market analysis as well as investment property analysis manually. The rental property calculator determines the return on investment of a rental property, as well as the cash flow, cap rate, cash on cash return, and potential rental income. The biggest advantage is its efficiency as it saves a lot of time and work, when planning where to buy investment property. Mashvisor’s tool will provide you with in-depth property and neighborhood analysis. In addition, it will suggest the optimal rental strategy for your investment. Curious to learn more about the rental property calculator? Make sure to read “Where can you find a rental property calculator?”
#2 What Are the Benefits of Buying an Investment Property to Rent Out in a Bad Neighborhood?
Investing in a bad neighborhood has several advantages. Nevertheless, when dealing with such areas, you should be well prepared. The benefits of investing in bad neighborhoods are:
- Higher Return on Investment
- Easier to Pay Off Mortgage
- Easier Expansion of Your Real Estate Business
Even if there are more benefits when you plan to buy a rental property in a bad neighborhood, without real estate education you may end up in a bad position. If you are curious to learn more about real estate education, make sure to read “What’s the Real Estate Education You Need to Start an Investment Business?”
#3 Reasons to Invest in Cheap Rental Properties
- Reason Number One
There are few reasons to buy a rental property that is cheap. Low income neighborhoods have great opportunities for generating high cash flow. Moreover, when you invest in low income neighborhoods, you can buy a rental property for half of what a landlord would pay in a class A neighborhood. However, the rental income would be lower as the landlord would charge around 15% less for rent. Additionally, when you buy a rental property in a bad location, you need to know that such neighborhoods are usually less affected by the economic downturn than better class areas. Consequently, you may expect some sort of stability when buying cheap rental properties.
- Reason Number Two
Another benefit of a cheap property is that tenants tend to move less due to the high expenses associated with moving. Hence, tenants stay in the property for a longer period of time. Therefore, you will reach a lower vacancy rate. This is always a good thing when it comes to traditional real estate investing.
- Reason Number Three
Another benefit for a landlord is the opportunity to buy multiple properties. What is meant by that? Imagine that for the amount of money you have, you can either buy a rental property in an expensive neighborhood or multiple properties in a bad neighborhood. Sometimes, it might be better to finance more than one property, despite the location.
#4 Reasons Not to Invest in Cheap Rental Properties
- Reason Number One
One of the important reasons not to buy cheap properties in bad neighborhoods is due to the higher crime rates in such areas. You should seriously think about that as the level of crime in the neighborhood will have a direct impact on the occupancy rate and, respectively, on the vacancy rate of your investment property.
- Reason Number Two
Not only finding where to invest in real estate is hard, but the process of renting out to the right tenants is challenging as well. You will need to conduct many interviews before finding the suitable tenants. As tenants in such areas are associated with bigger chances of causing trouble, you need to be careful who you are letting in your rental property situated in a bad neighborhood.
- Reason Number Three
As you are planning to buy a rental property in a bad neighborhood, prepare yourself as most of your tenants are living from pay slip to pay slip. Therefore, there might be delays in paying the rent. This will, hence, result in inconsistency in the monthly rental income you receive.
#5 When Should You Consider to Buy a Rental Property in a Bad Location?
If you have the opportunity, always choose the best possible location as a real estate investor. You should understand that when you buy a rental property, not all bad neighborhoods are equal. So, where to invest in real estate? Make sure you choose a location that is on the way up and has a lot of potential. When you are buying an investment property to rent out in a bad neighborhood, ensure that the location: is close to public transportation, has recent business investment nearby, has public facilities, etc. Moreover, make sure to look at the population. If the neighborhood has many working residents, there is a chance of having high occupancy rates. There is one more thing before you buy a rental property. Make sure that the neighborhood in question is close to another more popular area. This will give your bad neighborhood the opportunity to turn out as one of the top investment property locations in the future.
#6 What Is the Ideal Market for Low Risk Investments?
The best rental investment locations will first have a healthy economy that displays a job opportunity growth. An important feature of a real estate market is to have newly developed companies or other successful companies that are moving to the location of choice. This type of development would help the population growth as well as the demand for investment properties. Thus, your rental properties will have a higher occupancy rate and a lower vacancy rate. Would you like to learn more about low risk investments? Make sure to read “Why Real Estate Properties Are Among the Best Low Risk Investments”.
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