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10 Tips for Buying a Residential Rental Property, Part 2: Find the Right Neighborhood

This article was written by in Real Estate and Home. 14 comments.

As I mentioned in my last entry on this topic, rental property ownership can reward or punish you for decisions made during the buying process, so it’s crucial to make the right ones. It’s about much more than just getting the right price. Here’s my next tip in the series.

2. Find the right neighborhood.

Rental properties don’t always make good neighbors, but there are a few tricks to making it work. Overall, it’s important to find a community where your rental property will have a good chance of being accepted, and the ritziest corner of town may not be it. Even a terrific landlord with a pristine property can run into neighbors who just don’t want rentals in their community and will vocalize their feelings to local officials, resulting in increased scrutiny and eventually, tighter regulations. On the other hand, it’s hard to find and keep good tenants in bad areas, where crime rates may be higher. If you are looking to buy in an area where you feel this may be an issue, I advise driving around the area after 11 p.m. on several occasions during the week and weekend to get a feel for what the area’s really like after dark.

I’ve had the best luck with solid working-class neighborhoods, generally middle to lower income areas where tradesmen and even some businesses might reside, intermingled with the houses. One can often tell these neighborhoods by the work vans and trucks parked in the driveways. Not only do the residents understand the value of hard work, they appreciate the effort I invest in rehabilitating and improving my properties. Your presence in the neighborhood should help to make it a better place.

Proximity to one’s neighbors is an important factor, too – too close and there’s an increased risk of your tenants disturbing them or vice versa. Noise, garbage, and visitors all become more of an issue when in close quarters. I prefer detached homes, since my tenant has more control of his/her environment that way. It’s a shame to lose good tenants because of the constantly-fighting couple in the row home next door. With attached homes especially, you run the risk of inheriting your neighbors’ maintenance issues. If the house adjoining yours has a leaky roof, you may find rainwater traveling down the common wall and damaging the drywall in your unit, as I learned the hard way two years ago. If you don’t own the attached property, it’s much harder to address the problem.

Regardless of what neighborhood you choose, you never want your property to be the worst-looking one on the street, or complaints and possibly citations may follow. If you choose a property which visibly needs maintenance, you should budget to correct these issues within the first year, and ideally prior to renting it at all. This helps to show the township or city officials that you’re one of the good landlords, committed to keeping your property up, and can make a huge difference in your experiences over the life of the property.

It just might even lead to future property purchase incentives. I know, confidentially, of one real estate investor who is able to purchase certain homes for a mere dollar apiece on the condition that he will completely rehabilitate the properties. Especially in lower-income areas, city officials may offer incentives like a reduced sale price or even temporary tax amnesty to investors whom they feel can help with community gentrification and housing projects. Each property you own serves as a reference to your work, abilities, and commitment.

Updated September 30, 2007 and originally published August 27, 2007.

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About the author

Along with her partner, Sasha owns and manage six residential rental units. Sasha endeavors to support the causes and organizations she believes in through more conscientious spending practices. View all articles by .

{ 7 comments… read them below or add one }

avatar 1 Anonymous

Is it more difficult to attain a loan to improve upon properties in lower income areas then it is to obtain a mortgage in middle class neighborhoods?
How obtainable is it for your average joe to purchase properties for a dollar, with the promise to beautify and improve?
If there are lists, where can you find them and are they free?


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avatar 2 Sasha

Hi Shan,

I’ve had no issues obtaining mortgage loans because I have good credit and am buying properties within my means and at good prices. I believe those are the key factors. I know I’ve made a good deal when the mortgage or insurance appraiser comes out and estimates the property for more than what I paid right out of the gate.

If a house has safety or CO concerns, your insurance company will likely give you a period of time in which to fix them before they discontinue insurance. You may need to outline for them exactly what work will be done and when.

It’s not all that obtainable for your average investor to get a $1 deal–it’s like a very exclusive VIP room–but I mention it because it underscores the importance of being a quality landlord/rehabilitator. I never would’ve thought it possible, yet it happened, just a few weeks ago.

Your reputation and achievements can open all sorts of doors for you. Once people know you renovate houses, they may come to you in a bereavement or other situation. I’ve never gotten a $1 deal, but we did pick up one property deeply under its street value that way. I have to check the numbers but I think we ended up paying $35K when the house was worth at least $130K. Now it’s worth $250K minimum, though we did put additional funds into renovations.

The person I know with the $1 deal was offered it specifically and exclusively by a township which felt he did good works real-estate wise. They had properties they wanted gentrified, and he had the best local reputation. He remains very involved with the township, always attending community meetings and even has done a few “favors” in the area. He’s built excellent real estate investing “karma”.

Just remember it can go the other way as well–a reputation as a slumlord can cost you a world of hurt.

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avatar 3 Sasha

Oh, and I’ll add that while there’s no “list” that I know of, it doesn’t hurt to be enterprising. If you see an area in disrepair or a boarded-up house and have some references to prove your capabilities, there’s nothing stopping you from drawing up a proposal for renovation, bringing it into the city office and negotiating your terms. You may be able to buy for the back taxes owed if the city owns the property, get a good general price or even just a few years’ tax break. I know some programs like this exist for those looking to open businesses in certain areas; there may be incentives you can find as well.

The worst they can say is no.

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avatar 4 Anonymous

Thank you so much!

I greatly appreciate you taking the time to answer my questions.

All the best to you and I look forward to reading your next post ;)


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avatar 5 Anonymous

What are your thoughts on purchasing homes in areas that traditionally support rental properties, e.g., university / college communities or tourist communities?

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avatar 6 Anonymous

One other question that I did not see addressed in your series: what screening, precautions, etc. do you employ for finding the right tenants? I would surmise that part of the $500 spread is a hedge to account for the possibility (likelihood?) that, sooner or later, you will find a “deadbeat” renter….

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avatar 7 Sasha

Hi Jim,

I’ll try to answer both of your questions. I LOVE the idea of renting in college and tourist communities, because the income potential can be much greater and you’re less likely to have periods of vacancy. However, these types of communities may have stricter regulations because the neighbors have gotten sick and tired of the partying college kids or tourists. This is the reason why it’s so important to be familiar with local rental regulations.

This series of 10 tips focused on buying a rental property, but I am working on another series of tips related to actually being a landlord, so that’s where things like finding tenants, doing leases, going to court, filing paperwork, etc. would be covered. Stay tuned for that – I’ll provide lots of details.

Finding quality tenants is important, but yes, the spread is not all profit. You need to make sure you have enough to not tap into your other capital if you need to evict tenants, are stuck with a nonpaying tenants or period of vacancy, unexpected maintenance, etc. That’s unless your strategy differs from mine and you have a nice slush fund for such expenses. I simply never had that luxury.

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