Buying an investment property can be a smart financial decision, as it allows you to generate income through the renting or resale of a property that isn’t your primary residence. Do it right, and you can get a strong return through passive income, tax breaks, and equity gains.
However, buying an investment property can come with challenges, especially if it is your first venture. As the saying goes, the three most important things about real estate are ‘location, location, location.’ Think location first, and the property itself second. It might seem backward — after all, it’s the physical structure that you’re buying — but the “right” property in the wrong location isn’t likely to be the right property at all.
Investing in the right location sounds like good advice — except for one thing: Most people have no idea what it really means.
Lending Bee came up with things that are often overlooked when it comes to picking a good location versus a bad location:
Where the Cool Kids Are
Nowadays most homebuyers are millennials. This means that millennial tastes and preferences shape the desirability of an area and location. A location that is good for millennials has great transport links, good schools, and a feeling of community. A quiet, suburban location that may appeal more to boomers may not worth as much as you think.
What are your goals – cash flow or appreciation?
You have to make it clear whether you are looking to make money on the property right away (cash flow) or you want your house to gain a lot of value over a period (appreciation). If you’re looking for cash flow, a cheaper home in a less affluent area is what you should look for. If you want appreciation, your investment will be more long-term. You won’t make money right away, but the property will generally be newer, and easier to manage because it won’t need a lot of repairs and the tenets tend to stay longer.
Take gentrification into account
Try to recognize that a “good” location or a “bad” location won’t stay that way forever. Cities, towns, and even suburban communities are constantly changing, and neighborhoods can transition from less desirable to one considered “up and coming” within a few years. Take Brooklyn, NY for one – once super sketchy it now offers very expensive real estate around Williamsburg and others. Another upcoming town is Oakland, CA which real estate agents are marketing now as ‘Brooklyn by the Bay’ for a clear reference.
No one wants to invest in a high-crime area because no one wants to live in one. You can tell if the potential neighborhood for investing might be dangerous by checking the crime data that a city usually publishes. Don’t forget about the old usual signs of an unsafe neighborhood (look around on Google Street View if you are far away) that include: the tumbled down houses, old hoopties parked on the street, surrounding businesses that bail bondsmen, liquor stores, and check cashing places. If the city you want to invest in has a local page on Reddit, read through that.
In short, location isn’t entirely subjective—on the contrary, it’s based on a static set of criteria. When you looking for a new property, make sure the neighborhood isn’t just desirable to you but has objective qualities for a good investment. If you would rather have a professional opinion, you can talk to our agents at Lending Bee who are always available to give a piece of advice and vet a neighborhood for you.