How do you determine if you are investing in the right neighbourhood that will be very lucrative? Buying an investment property in the wrong neighbourhood can affect your cash flow and cost you more money than expected.
Understanding how to analyze a potential neighbourhood will allow you to get the most out of your rental property. Here are a few things to consider when investing in the right neighbourhood.
The Business of the Investment
Make sure you know exactly how you want your property to generate cash flow. Stick to middle income neighbourhoods if you want to rent out your property in a traditional manner. However, if you want to take a nontraditional approach to your investment property such as listing it on Airbnb, you might want to consider more of a high traffic area with nearby tourist attractions.
If you’re on a tight investment budget you might want to consider low-income neighbourhoods. These neighbourhoods typically have affordable, low priced properties and generally have high rent-to-value ratios. Normally, residents of these neighbourhoods are on government assistance such as Section 8 housing assistance, which is a reliable source of rent.
How’s the Competition?
Institutional and professional investors have been snatching up single-family homes in the hardest hit markets across the nation. They’re grabbing potential high performing properties with the goal of yielding high-returns from rental income and recovering house prices. This is a good indicator of a neighbourhood that will outperform the market.
These investors have been in business for a while and might be ahead of you but don’t let this limit you. There are plenty of opportunities that no one person or group can ever completely capture. Get creative and hire an experienced Realtor to quickly find and acquire a high-return investment.
The Airbnb Neighbourhood
Certain neighbourhoods are undoubtedly high-return Airbnb neighbourhoods, these neighbourhoods are usually central and tourist destinations. For the most part, these neighbourhoods have an excess of Airbnb properties, which might make it very difficult for you to compete with experienced Airbnb Superhosts.
Finding the few remaining neighbourhoods with a reasonable competition still generating a high return is not an easy task for most Investors. Mashvisor’s Airbnb Analytics report is assisting real estate investors to pinpoint high performing neighbourhoods by analyzing real-time real estate data.
The Science of a Latte
When it comes to real estate investments, it’s important to have multiple top-rated schools, low crime and a Starbucks. A study that compared a database of Starbucks locations with real estate data found that the two are closely correlated. Upscale retail chain are signs a neighbourhood is well established and properties near these locations typically appreciate at a faster rate.
These business have done the market research to assure that the neighbourhood is stable and worth the investment. Companies like Starbucks have a team of experts that analyze areas to assess the value of the area so you can feel confident with their assessment of the location.
Is it in walking Distance?
Having your investment within walking distance of public services is always an added value for you and your tenants, whether you decide to list your property on Airbnb or as a traditional rental. Homes with easy access to public transit or walking distance to desired areas will fetch higher rent than similar homes that are further away. You can get a property walkability score from walkscore.com.
Make sure to choose a property that is conveniently located yet don’t get too close. Find a property that is walking distance but not adjacent to bus stops or high traffic services. Make sure your tenants can enjoy their privacy yet have nearby accessibility.
If all of this seems like a foreign language to you, don’t stress. Mashvisor and other online resources can give you the knowledge you need to locate the right neighbourhood and invest in a property that is a good fit for your situation. Pay attention to these five things and you’ll surely find the right neighbourhood to invest in.
What tools or resources do you use to research neighbourhoods beyond your area? Leave a comment, and let’s chat!
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