How to Find Great Neighborhoods for Investing

How to Find Great Neighborhoods for Investing

March 1, 2022

Are you interested in real estate investing, but aren't sure where to look? In this article, we'll explore some ways for you to narrow your search to find neighborhoods that have investment properties that align with your strategy.

As you begin to discover great neighborhoods for investing, you’ll want to keep your goals in mind. Think about your budget, your income target, and the type of property you'd like to add to your portfolio. Are you looking for single-family homes or a duplex? Do you want an expensive property in an in-demand neighborhood with frequent turnover and the option for future growth of the rent? Maybe you would prefer a quiet, family-oriented neighborhood with more stable long-term renters? Do you want a new property, or will an older existing rental property meet your needs?

Keep in mind that some neighborhood information can often be correlated. Densely populated neighborhoods with good transit options may have lower unemployment. Neighborhoods with better schools may have more families and fewer single people looking for housing. No single variable will tell you everything, but as you consider different neighborhoods and your interests as an investor, you’ll get to know what things are important for you.

Let's look at some things to consider when seeking out a neighborhood for your next investment.

Real estate prices

There are several financial considerations to assess about a neighborhood that can help you decide if it’s worth your consideration. One of the key factors is the housing prices, or can you afford the neighborhood's median home price?  For example, the median home price in Atlanta is just over $367,000. You can use various tools to look up home prices in different real estate markets.

If you’re a cash buyer, a neighborhood's affordability will be easy to determine. If you’re financing your investment property, it’s a simple formula to figure out what price range you can afford relative to your down payment. For example, if you have $100k to invest, and you are putting 25% down to secure your financing, you can afford up to a $400k property.

Income and expenses

To complete the financial assessment of a neighborhood, You’ll also want to consider the market rate for average rents in the neighborhood since the rental income will be a key factor in whether an investment property will generate positive cash flow.

You'll also want to figure in expenses related to any repairs & improvements a property may need. These variable costs depending on the building’s condition will help you figure out how far your investment funds can go. You'll also want to look at property taxes, which are another expense you'll need to calculate.

Also, keep in mind the property value. The appreciation of your rental properties will increase your equity, which will add to your long-term investment growth.

School Options

If your strategy includes seeking investment properties with multi-bedroom units that could attract families, you’ll want to consider the neighborhood’s schools. When families move to a new location, a good school district is a high priority.

You can search for public school rankings on the internet to get an idea of how well a school performs with academics or sports. You'll want to look at individual school reviews and notice any trends or indicators that may affect property values.

Transit & walkability

Transit data is an important indicator to determine how easy it is to get around or between neighborhoods. If it is difficult to get to different neighborhoods, it may be harder to fill a vacant apartment unit, or there may be higher demand for a building that offers parking.

Depending on your investment strategy, public transportation could be vital, especially if you target tenants who rely on transit systems to get to work. In cities with an excellent public transportation system, your renters may expect options like a nearby bus route, or subway.

Finding transit options is easy using online maps to look for directions that offer transit details.

Walk score is another measure you can use to evaluate a neighborhood. They’ll help you learn about the safety and services available to your potential renters on foot. For many renters, a higher walk score is seen as an attractive alternative to a neighborhood where they may need to own a car.

Neighborhood amenities

It may seem obvious to consider the surrounding neighborhood’s average purchase price or the quality of the school district, but don’t forget to also consider the amenities offered to the community in a particular location. This also ties together with a neighborhood’s walk score. Things that will help keep renters in your units include good access to parks, schools, grocery stores, activities, restaurants, and hospitals.

Your strategy will play a key role here. If you are seeking a luxury building for single professionals with high rental rates, you may want to find a neighborhood with nightclubs and restaurants. The prominent activities in a specific neighborhood will strongly suggest who lives there.

Demographics

Demographics include a wide range of aspects like age, race, occupation, education, income level, and marital status.

A robust job market with high-income levels is an indicator of a good neighborhood for investing. Finding the density of families vs single people in a neighborhood can influence your investment approach. For example, a higher density of families may be an indicator to seek out a property with rental units that have more than one bedroom.

A higher median age may show that it isn’t an appropriate neighborhood. Typically, older individuals aren't looking for rentals.

There are various online tools to do demographic research about a neighborhood, and you can narrow in your search for a new property based on your findings.

Conclusion

There are many tools for researching a neighborhood where you might want to seek out new rental properties. Smart real estate investors should do plenty of research about neighborhood details to ensure their investment property aligns with their strategy and can reach its full potential. And then, when you find a property, you can use Padvest’s real estate investment tools to help you make a fast, easy decision about your next investment.