How do you determine if a neighborhood/city is good to purchase a rental property?

7 Replies

Hello Everyone,

I am fairly new to this forum and to real estate investing. I would like to purchase my first rental property and I am currently researching neighborhoods/cities in Florida. However I wanted to ask... What type of information do you look for when selecting a city and neighborhood to invest in? Also where can that information be found? Any advice would be greatly appreciated.

You look at stats on population and employment.  It is best if it is a multi-industrial area too.

http://www.governing.com/gov-data/census/county-po...

http://www.cityrating.com/joboutlook.asp

You might consider crime and schools.

http://www.crimemapping.com/

http://www.greatschools.org/

Some people go to the city planning office to find out what will happen in the future.  Some people will invest in crime infested areas if they know that money will soon be dumped into a neighborhood to improve it.  It is a risk that I have seen work.  They did it in Harlem and they are doing it in Atlanta and Detroit.

Harlem had a lot going for it

It was in the greatest city

It had some really interesting Brownstones and there was no where else to go in the city but uptown.  New York is not your average city.

@Barbara Goodman I think you make a great point.  Harlem was in the path of progress and it had interesting architecture.  There are a lot case studies where this happens.  These are good factors when evaluating urban markets like the City of Atlanta.

Real estate is a business like any other business. It follows the laws of supply and demand.  Don't think cities. They're too big. Demand is a very local phenomenon. Some areas experience high demand, and others nearby can experience very low demand. I recommend investing in areas that experience high demand. 

In some cases, there is a lot of money to be made where a boundary exists between a hot neighborhood and a not-so-hot one. Buy on that line, and move the line. But you have to buy on a movable line. If the boundary is fixed (like a municipal boundary or a school district), then it's not going to move anytime soon. But if the boundary is arbitrary and historical, then it could be moved with enough development. 

A single home probably won't be enough. But if you redevelop 5 or 10, then the market will recognize that the boundary has moved. You can create huge value that way. 

A sheet of drywall will cost you about $10 regardless where you install it. But the value of that sheet of drywall is determined by the neighborhood you place it in. Put it in a location that has high demand.

I go where ever the deals are. I would like to focus on one location but the deals have me scatered all over the place. This is a very bias question which makes it tough to answer. But if the numbers work and the house is soild, I'll make it work. I will not however now buy a place where I feel my tools will get stolen. if I walk into a place and see that someone took the copper or little things here and there, I tend to not even give that property a thought.

Check with the local chamber commerce, they are often very chatty (read bored) and will tell you all about what is happening and not happening in their town / district. I will get yelled at by both sides for saying this, but ask some realtors - specifically where they are seeing RENTAL activity. On the MLS, it is very easy to pull up a map of recently rented properties (not actively for-rent, but rented) and follow the groupings.

Once you have narrowed it down, I always suggest going for a walk through the neighborhood. I usually drive around for an afternoon, then get out and walk. I also like to go back around 1-2am and do another walk. Its important to know what kind of neighborhood you will be asking people to live in, and sometimes that doesn't show until after midnight. Bring a friend perhaps.

The other way of approaching this is find the deal, find the house where the numbers work first.   After that then do your research on the neighborhood  and see if that neighborhood is viable in relation to the value of the property you are interested in.