What are the Best Neighborhoods to Buy Rental Properties?
This is a question I get a lot: What are the best neighborhoods to buy rental properties? Of course the answer is best answered by imposing another, what do you want to get out of your investment property? Typically there are 2 or 3 replies that come out the most often: Looking for strong cash flow, looking for strong capital growth. Looking for a nice mix of cash flow and growth.
Strong cash flow neighborhoods:
These tend to be lower priced homes in working class areas toward the inner city, they tend to be lower social economic areas. You want to check to see that you have a lot of public transportation nearby as many of these tenants rely on that to get to work. You will note there may be a fine line between a working class neighborhood and a (well, bad neighborhood) so you want to be diligent to be sure it turns out to be one of the best neighborhoods to buy rental properties.
Strong capital growth neighborhoods:
These are properties in high demand areas, typically white collar neighborhoods in communities (perhaps a gated community) located in quiet residential areas but close to shopping, recreational activities with ease of access to work and play.
A balanced neighborhood of capital growth and cash flow:
(This is my personal favorite) These will be homes in middle class America. This of course is representative of homes the average person can afford to buy and rent. You will want to identify homes or neighborhoods that are considered to be in the median price of the city. If the median price in the city for a home is $100k, then you want neighborhoods that have housing in the $100k area. You want a mix of the public transportation and the close proximity to work and play. You will want to check to make sure rents will be sufficient to cover the 1% rule (where monthly rents are at least equal to or better than 1% of the purchase price).
Buying a strong structurally sound property in either of these communities will give you the best results for you objectives. Lowest price is not always the best deal. I always say safe and sustainability will give better results long term than cheap prices with strong returns that result in many unforeseen expenses.
Diligence is the key.