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By Evelyn Long
When individuals find a good deal on a house, they often experience tunnel vision. Many buyers jump the gun and complete their purchase before evaluating the neighborhood. It is essential for those looking to invest in rental properties to explore an area’s residential appeal before making a purchase.
Since the pandemic, many people have moved out of cities and into suburban areas. Investors can utilize this residential migration pattern to develop successful rental properties. Before establishing these homes, a buyer should evaluate the environmental impacts, school district, employment opportunities, surrounding businesses and state of the market in the neighborhood.
School District
Nearly 42% of homebuyers ages 31-40 make their purchases based on the quality of the school district. This can also ring true for renters, especially given that half of all renters are over age 40. Individuals who rent single-family homes are typically young parents or newlyweds looking to integrate themselves into a safe and potentially kid-friendly neighborhood.
These young families highly value education and position themselves and their families for adequate access to learning. Potential investors should evaluate the school district where they are making a purchase to ensure it aligns with renters’ needs.
Not every investor will cater to families, of course — young professionals and college students are less likely to consider childhood education. If you’re planning to manage properties in a location where this is less of a factor, then the following metrics should be more impactful.
Employment Opportunity
Since mid-March of last year, the unemployment rate has reached 14.7%, which influenced residents nationally. Having access to employment opportunities is more important than ever before. While some individuals work close to their living quarters, many others commute — especially those living in rural or suburban areas.
Employees who commute to work may spend many hours in their cars each week, with most suburbs being within 30 minutes of a city center. Sitting in rush hour can also increase stress levels, anxiety and overall dissatisfaction. Therefore, many renters increasingly value proximity to major workplaces. If a rental property is within a few miles of a potential workplace, people will be more likely to live there.
Surrounding Businesses
A great sign of an up-and-coming neighborhood is the influx of new businesses. Small and national storefronts alike do market research to determine their success in a new location — so if you, as an investor, see a few trendy restaurants and grocery stores cropping up, it’s likely to be a good opportunity for rentals as well.
People value eating out at restaurants, so you may want to evaluate dining options near your potential rental property. Around 20% of Americans visit a full-service restaurant at least once a week, and dining locations can make or break your ability to find renters. After all, what can be a better selling point than being walking distance to your favorite takeout spot?
State of the Market
It is also beneficial to the success of your rental property to evaluate the surrounding real estate. You can do some research before making your purchase by reviewing the listings in the surrounding neighborhoods. What do property values look like over the past few years? What are the rates of homeownership vs. renting?
You can also track the number of days a home is on the market. If houses in the area take a long time to sell, you may want to reconsider your investment in that neighborhood. It is always helpful to talk to community members about the local real estate market to gauge the potential profitability of your rental property.
Environmental Impacts
Sometimes cost-effective real estate signifies a detrimental environmental issue. In Tar Creek, Oklahoma, a once comfortable rural community became a ghost town. The town was once a booming mining site, and the industry left when the demand slowed down.
Companies left piles of chat that look like dunes. They consist of dangerously high levels of lead and quickly became a health hazard affecting the development of children in the surrounding neighborhoods. Lead polluted most of Tar Creek, from the soil where produce grew to the air residents breathed.
Many people also have a growing concern about their water quality since the crisis in Flint, Michigan. Before investing in a rental property, you should look into environmental records and news sources to determine whether the market is low-cost because of growing opportunities or unfortunate crises.
Residents look for a clean environment around their neighborhood where they may engage in physical activities. After a year of residing inside, people gained a higher value of time spent outdoors. If the property you are looking at has surrounding walking or hiking trails, you may be in good shape for making a successful purchase.
Where to Start Evaluating a Rental Market
Local real estate investors have an advantage in getting a feel for the opportunity a rental market presents. Friends, family and drives around a neighborhood can help determine whether business growth, education and employment are likely to put a market on the up-and-up.
If you’re scouting rental properties in a location you’re less familiar with, use these tips to look into a market’s current conditions and determine whether it’s a good fit for your portfolio. A combination of raw numbers and your professional insight can help you find success in new investments.
Photo by Michael Tuszynski from Pexels
Author
Evelyn Long is the editor-in-chief of Renovated. Her real estate work has been published by the National Association of REALTORS®, Rental Housing Journal, and other online publications.
