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.