Secrets to finding the best neighborhood for investment

Secrets to finding the best neighborhood for investment

Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes

Recently asked by a friend how to find the best target area for investment.  Here's my response:

My rule #1 is school district. Best district = highest, most stable values, longest lasting tenants. 

On a more local neighborhood basis, ask the locals which are the best elementary schools. Normally this holds true around the entire country, except very rural areas.

Then drive and walk those neighborhoods of interest. Ask yourself if you'd let your kids walk there by themselves. You get my drift?  Talk to the folks out gardening or cleaning up around their property. Speak with the mail carrier, the UPS driver, the local hardware store owner, local real estate brokers, etc. 

Make sure to stop in the local coffee shop and hang out a while.  Ask questions and listen to the answers.

Check out the local listings, as well as the local recently sold properties. You'll gain a real feel for the neighborhood, and can make plans accordingly.

It's worked for me since 1980 and still holds true--if we're willing to put in the time and effort. It's the other half of staring at the screen looking at what the Zillows of the internet are showing.

Although I've worked with dozens of out-of-state and out-of-country investors who have bought from me sight-unseen, to me that only works if you know and really trust the person you're working with.  I haven't bought any property I haven't personally seen.  I know, I'm old-school.  But it's worked very well for me, hope it helps you, too.

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Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
11mo

@Marc Winter, the issue is: this only works for your definition of the "best neighborhood".  What I see around Cincinnati: the school districts (or more precisely the actual school the resident will attend) that are highest rated, offer the best security investment but often the lowest returns both in cashflow and overall.  

My highest returns come from the more marginal areas.  Not high crime, per se, but definitely the neighborhoods that feed into "fine" schools.  The Class B-/C type neighborhoods, where the typical tenant has reasonably steady jobs, has some choice in housing options, isn't going broke needing to decide between rent or groceries (to the aspiring investors reading this: food will always trump rent).  The parents want to be in the best school district they can get into, that is also convenient to work.  

I won't say my "class A" neighborhood investments did poorly, by any means.  They also did well, just not as well as my investments in areas that were a step down, from a financial perspective.  But, from a perceived risk perspective, the "class A" neighborhood investments certainly won.

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  • Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    11mo

    Great advise! I'd add in any new developments or chain restaurants/coffee shops/stores that are nearby. Those larger chain businesses are typically picky in what areas they put a new location in

  • Seth McGatheyBusiness Member
    Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 255 votes
    11mo

    I agree with most of this. There is one piece I will challenge, and it's something I actually had change in my mind just recently at BPCon. Dion McNeeley challenged a lot of preconceived assumptions of investing in his closing keynote. One of those things was that he looks for bad school areas, specifically because in his view that creates an age out for tenants. As parents will likely only stay until their kids graduate. He says that most of his tenants tend to stay until they pass away! Second, good schools generally come with high taxes. 

    I think the real message he was making though is not necessarily look for bad schools. It is, know your goals and make sure your buy criteria actually fit those goals. His stated goals was the most money with the least hands on work. And so his buy box fit that. 

    Seth McGathey - Shorewest Realtor4.912 Reviews
  • Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    11mo

    @Marc Winter, the issue is: this only works for your definition of the "best neighborhood".  What I see around Cincinnati: the school districts (or more precisely the actual school the resident will attend) that are highest rated, offer the best security investment but often the lowest returns both in cashflow and overall.  

    My highest returns come from the more marginal areas.  Not high crime, per se, but definitely the neighborhoods that feed into "fine" schools.  The Class B-/C type neighborhoods, where the typical tenant has reasonably steady jobs, has some choice in housing options, isn't going broke needing to decide between rent or groceries (to the aspiring investors reading this: food will always trump rent).  The parents want to be in the best school district they can get into, that is also convenient to work.  

    I won't say my "class A" neighborhood investments did poorly, by any means.  They also did well, just not as well as my investments in areas that were a step down, from a financial perspective.  But, from a perceived risk perspective, the "class A" neighborhood investments certainly won.

  • Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    11mo

    I like areas that are gentrifying. For example in Chicago the neighborhood andersonville is gentrified lots of million dollar + properties but Rogers Park next door is cheaper and still mixed some richer people some lower class. Buy in those neighborhood next door areas and ride the wave. Same with a neighborhood called Albany Park it used to have shootings and now hipster bars opening up, ride the appreciation and rent growth wave. 

    • MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
      11mo
      Quote from @Henry Lazerow:

      I like areas that are gentrifying. For example in Chicago the neighborhood andersonville is gentrified lots of million dollar + properties but Rogers Park next door is cheaper and still mixed some richer people some lower class. Buy in those neighborhood next door areas and ride the wave. Same with a neighborhood called Albany Park it used to have shootings and now hipster bars opening up, ride the appreciation and rent growth wave. 

      This is how I made my money early on but I wasn't a trail blazer which was a good thing because I've seen attempts at this fail miserably with Hopkins and Pigtown in Baltimore as examples. 
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    11mo

    I think in general a lot of B areas are what will work for people here.  A lot of people unfortunately think things like vacancy, utility reimbursements, and maintenance will be the same in either an A area or a D area and they are drastically different.  The C areas can work but with laws becoming more and more tenant friendly mistakes will be costlier and the perceived cash flow will go down more than expected though way better than D.  A is way more expensive to purchase though risks go way down.  B is the best to me because the cashflow is better than A bc purchase price is lower and you can get the same type of high credit score tenant.  You just have to work harder to find them and they might not stay quite as long.  

    If your an OOS investor or don't know the neighborhoods if your closer I think 1 of the best ways to find these would be find some pms with better ratings in your market and  ask them where they see the best markets.  If they aren't your realtor they wont be incentivized to just sell you something.  Everyone hates someone just wanting something for nothing too much but if your quick and have a few brief questions they might be cool and give you a little of their time.  If you call around and get the same story from multiple pms that should help narrow it down. 
       

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