Which neighborhoods should I rent in?

Question

There are several different neighborhoods with varying rent prices and also varying year-to-year(YTY) rent increases. Which should I go for? The highest rent prices? medium to high rent prices? Should I instead buy in a neighborhood with a 14% YTY rent increase? or the one with 3-5% increase? I live in Spokane, WA and rent prices are fairly cheap. Average rent is 920$ ranging from 500-1500$. Granted, there might not be deals in every location I mentioned, but just for scenarios sake, where would someone recommend I look?

Dan G. · Answer

That’s the thing about investing there is no one way to do it. I whoslale properties and find off market discounted properties around the spokane area. One thing I learned is there is no one way to invest. Some of my buyers are complete opposites where they only want C properties that need a ton of work, while others specificly want B class neighborhoods like shadle and with paint and carpet rehabs only.

This variability  pertains not only to renting but to flipping, rehab costs etc.  Every investor has there own strategy, edge, specialty and process. That is something you are hashing out for yourself .  Once you have your criteria you will really quickly know what is a good deal and what’s is not for you.

In general though with vacancy rates being around 1%  in Spokane you really won’t have a problem renting the units given you buy right. It always comes back to buying it right. For my own investing I like to Use the 1% rule.

For example if I by a duplex for 100,000 the gross rents should be at least 1,000 that is after all repairs etc. Do if it needed 15k in repairs I would aim to pay no more then 85k

I know that may sound like a tough number to get. I get it. It takes out 90% of all listed properties.  It makes it easier for you though to do your evaluations and make quicker decisions.

Also a good tool I like to use is rebtometer.com to see what properties in a certain area will rent for. If I’m I’m intrestead I’ll also Che k Zillow rents in the neighborhood.

David Clinton III · Answer

Kristin is a smart investor, and I agree with much of what she says on Bigger Pockets.  However I take a different position here.  Everybody needs a place to live, and you are not necessarily your own customer.  I own a number of rentals in places I wouldn't prefer to live myself, but I do have tenants that pay the rent on time, and are content to live there.

I fully agree with her approach to your question, though... in order for anybody to give a good answer, one must first understand your goals.  This will shape your investment direction, as one size does NOT fit all!

Kristin Whitaker · Answer

Hi Jack, what are your goals?  Immediate cash flow?  Long-term appreciation?  Equity in rehab or turnkey?  Start there then work your way backwards to a property that meets them.  My advice is always first - don't buy in a location you wouldn't live in yourself.  There's some of those in Spokane (for me at least!).

Jack Walker · Answer

Thank you all for adding fantastic input @David Clinton III, @Stone Jin, @Dan G., and to answer questions asked from @James Wise, I am a first time investor looking for a house hack. I plan on doing renovations with a friend/partner. I plan on replacing my current income with enough cash-flow to reach financial freedom. I want to find houses with add value, but I don't want a hurricane disaster for a first house. I am really interested in multifamily homes, but if a deal comes along that happens to be a SFH with enough rooms that i could rent out, I would also go for that. Gathering from the input i have received from all of you guys, it seems going for B neighborhoods for both ease of rehab on first project and a more reliable rent pool. I like the idea of renting out only what you would live in.

Stone Jin · Answer

The one thing we can be certain of is that the past is not an indication of the future.  Neighborhood with massive growth in the last 5 years may not have massive growth the next 5 years.   You probably don't want to buy in A neighborhoods because if there is a downturn you don't have a large tenant pool, if you buy in B neighborhoods you have people moving up and moving down.

We only buy houses we would be comfortable living in ourself, not just the neighborhood.  Works for our strategy.

James Wise · Answer

Well how involved do you want to be? How risk adverse are you? And are you trying to make money to replace current income now? Or are you trying to park money in incredibly stable real estate to create a tax shelter and fund your eventual retirement 30-40 years down the road?

Jack Walker · Answer

@Kristin Whitaker thanks for the advice! I am looking for value add long term rentals. Specifically multi family homes that need some work. I like the idea of not buying a home I wouldn’t live in.

Which neighborhoods should I rent in?

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