This is a guest post by Financial Wolves, a blog about making money with side hustles to help you achieve financial freedom.
Real estate is a fascinating asset class for investment. It’s the only asset class that you can get so locationally specific that you can invest not only by city, but by neighborhood or even by street within a neighborhood.
These types of decisions can have a huge impact on your rental rates, which will ultimately have an impact on your investment returns. Real estate investing starts all with rental rates. I personally believe that if you invest in high rent areas, you will have a much easier time selling your property.
As an investor myself, I want strong cash flow, the opportunity for capital appreciation and higher liquidity options for potential exit. One of the biggest cons of real estate investing is a lack of liquidity. Any opportunity I can get to mitigate that con. I’ll take it.
Investing in a property on the wrong street could have a huge impact on your goals as an investor, so how do you find neighborhoods that will be inelastic for rental rates and drive continued low vacancy.
Let’s evaluate what makes up a strong rental neighborhood.
List of Characteristics That Drive Higher Rental Rates
These are some of the most important components to look for in a high rental rate market.
Let’s talk about an easy one. Schools are one, if not the most, important consideration with selecting a home for rent and even for your personal life. Everyone loves their children and it is our natural instinct to want them to grow up in the best possible environment possible.
Therefore, people are willing to pay a premium to be located in a district that has the best in breed school systems. As long as the schools and opportunities in a particular market or neighborhood are strong, you should have a nice “floor” on your rental rates.
Making it easier to rent your home no matter if it is off-peak or peak season. Schools are likely a bigger consideration for sale value and the actual value of your home.
Transportation is another component that people love with renting. This works well in urban environments where land is scarce and parking is limited. This drives to more people using public transportation. In certain markets, public transportation is easier to get around any other option.
Plus, it offers peace of mind to people. They know they don’t have to drive or deal with the stress. When looking at a property, use Google Maps to see how people can get around using public transportation from the property.
Corporations / Job Opportunities
Higher-income neighborhoods likely mean that people can afford higher rents. It’s just simple math. Look for neighborhoods that are close to large corporations and favorable job environments on the corporate side.
You may want to think about homes that are not directly located next door to a corporation. However, consider cities that contain these corporations.
Then, find homes that are close to some of the other characteristics mentioned herein.
Restaurant / Commercial Factor
This has always been a personal consideration of mine. I love to follow the top restaurants, boutique shops and trends.
So far it has worked. Locally in Minneapolis, there is a decent foodie scene. I bought a condo right at the same time a Minnesota native chef that previously worked in New York was opening a restaurant in that very neighborhood.
The restaurant was a hit and brought many other businesses to open alongside it. That started a monsoon of commercial development. Now other people were proud to say they lived close to this amazing restaurant and boutique shopping district.
Use commercial business trends as a neighborhood indicator for future rental price increases. You can try to factor that into my free rental property spreadsheet. This will help you understand the ability to achieve your financial goals.
Bringing it all together. Being able to walk to all the above locations like schools, restaurants, work, etc. is very important.
That is not only it. Just general walkability is important too. You likely won’t be able to charge high rents if a major highway cuts directly in the middle of the city. People are willing to pay more for areas that are laid out correctly. Neighborhoods and markets that have good walkable flow will attract more demand.
I shouldn’t have to explain why people don’t want to live near crime. This is one of the easier ways to screen for high rent areas. You can use a local city crime spotter or police blotter to determine how much crime has happened in an area for a particular time frame.
Sometimes the perception that a neighborhood has bad crime, but actually does not could lead to rental opportunity.
Finding the right home or investment opportunity is all about making calculated decisions. With direct real estate investing, you are in control. You can determine your outcomes and it all starts with finding favorable rental rates and high demand locations. With things like real estate crowdfunding, you won’t have that type of control. You can use that as a mechanism to diversify into other markets outside of your local area.
Take matters into your own hands and do your proper due diligence on streets and neighborhoods. It could have a massive impact on your ultimate outcome.
If you find a home with that checks all these boxes but is lower than the Rentometer average, then you have opportunity! You should be able to raise rents to the market average.
What is your favorite characteristic that makes up a high rent neighborhood? Let me know in the comments below.
About the Author: Financial Wolves is a blog focused on helping you make more money to achieve financial freedom. After repaying student loans, I’ve shifted my focus to make more money from side hustles, real estate, freelancing, and the online economy. Follow us on Twitter and Facebook.