Purchasing a rental property can be a very profitable real estate investment strategy. However, before buying a house to rent out, the first thing you need to do to ensure success is to research a neighborhood’s investment potential. Researching a neighborhood will show you whether buying rental property is a worthwhile venture in the area or not.
And anyone can learn how to research a neighborhood before investing in rental properties! Here is some of the neighborhood information you will need and how to find it:
Return on Investment Data
The best places to invest in real estate are those that will provide a good return on investment. While you might think to check crime rates or the school district first, it can be a waste of time if the average return on investment of the neighborhood is very low or worse, negative.
Using the right tool, like a rental property and Airbnb calculator, will make your work of identifying up and coming neighborhoods much easier. You can use Mashvisor’s neighborhood analysis tool- the heatmap – to get information on average rental income, occupancy rates by neighborhood, and average return on investment. The real estate heatmap allows you to research real estate markets using the following filters:
- Listing price
- Airbnb and Traditional cash on cash return
- Airbnb and Traditional rental income
- Airbnb occupancy rate
And Mashvisor provides even more neighborhood data. Once you find a promising neighborhood, you can visit the Neighborhood Analysis Page to see things like the Walk Score, rental comps, and more investment insights.
Many tenants are concerned about crime rates when moving into a new area. Most cities and states offer a neighborhood map online that reveals the density of crime in different regions. You could also talk to a local real estate agent to learn more about crime in a neighborhood.
If your tenants end up living alone, are a parent or are often out late, they will be especially worried about sex offenders in the neighborhood. You can find out about sex offenders on the National Sex Offender Website.
Though getting such neighborhood statistics might take a lot of neighborhood research, the information will be worth it. Safe neighborhoods will attract more tenants.
Does the neighborhood make it easy for people to get around, whether on foot, bicycle or driving? This is an important consideration when conducting real estate market research. The best neighborhoods have sufficient sidewalks and bike paths, meaning that people can walk to grocery stores or restaurants safely. If the neighborhood has moderate rush-hour traffic, residents can commute to and from work conveniently.
The Walk Score will help you find out information about a neighborhood. It will show you how extensive the bike paths and sidewalks are, and how far you can travel on a train or bus in 30 minutes.
Neighborhood Amenities and Activities
Local neighborhood amenities are very important for people of all ages. When trying to learn about a neighborhood, find out if the neighborhood has the activities and amenities that your tenants would want. For example, parents with young children would be interested in libraries, swimming pools, recreation parks, karate lessons, and animal shelters. A single young person would be interested in gyms, restaurants or clubs nearby.
You can do online research to find this information out, talk to locals, or even check out neighborhood groups and pages on social media. Though a neighborhood might not have everything you require, make sure the most important amenities are available.
Taxes and Other Expenses
Part of neighborhood research and community analysis is looking at the expenses of owning property in the neighborhood. Such expenses should be considered since they will affect your profitability. For example, owning an apartment or condo usually means paying an annual homeowners’ association fee. An HOA also comes with rules which might be inconvenient to your tenants. You should also consider the general cost of living in the town or city. If tenants have to dig deep to meet their daily needs, you are likely to experience low occupancy rates.
Another important cost to consider during neighborhood research is property taxes. Since they are based on the value of your property, they might continue rising as your home appreciates.
Many people consider a foreclosure as a great bargain for buying investment property. However, it is not necessarily a good thing when a neighborhood is filled with foreclosure signs. When real estate prices drop drastically, so does property taxes, which ends up affecting the area’s safety and public services. Foreclosures and distressed properties can also negatively affect the value of adjacent homes even if they are in good condition. Therefore, if you come across a neighborhood filled with empty houses or foreclosure signs, do further neighborhood research to find out if a real estate investment would be viable.
Annoying Smells and Sounds
It is very important to visit an area at different times of the day before making a decision to buy rental property. This neighborhood research will give you an opportunity to smell and listen to what’s going on there. You might discover that local bars, train tracks, and air traffic create noises that could be a nuisance to your tenants. Other annoying noises could come from neighbors or nearby construction sites. While conducting neighborhood research, remember to smell the air as well. A stagnant lake, sewage problems or nearby factories could generate bad odors that will affect your tenants.
While the issue of schools would be more crucial for families with young children, the presence of good schools should be a major consideration during neighborhood research. Private and public schools, pre-school through high school, can have a great impact on real estate appreciation. Having good schools in the area usually results in a higher demand for rentals, which means a better occupancy rate for your rental property.
The Future of the Neighborhood
When checking neighborhood ratings, don’t just consider the current state. Visit the local planning office to learn about future plans for the area. You will be informed about any future road expansions or construction projects that will affect the neighborhood. Don’t just assume that the neighborhood is ideal because it is quiet with lots of trees. A developer might just be planning on cutting down the trees to put up a community college.
Even if the future plans will not affect your investment property directly, they might have a great impact on the culture and atmosphere of the neighborhood. Therefore, be sure to check with the local planning office as well as the homeowners’ association for such neighborhood information.
Gathering neighborhood information before buying a house to rent out will save you lots of stress and money. Just be sure to start with real estate neighborhood analysis to determine if the area is even profitable for rental properties to begin with.