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Best Neighborhoods To Buy Rental Property

Performance Property Real Estate Question

Q: Gerald, my wife and I want to buy a rental property. Expensive neighborhoods, middle class neighborhoods or blighted neighborhoods: which neighborhood type is best to buy rentals? Clayton, Cliffside Park, NJ


A: Clayton, the key to success as a landlord does not necessarily lie in the economic landscape of the neighborhood you choose to buy your rental property in. Success lies in the specific strategy you execute and implement as a landlord which should at least in part be based on the economic character of the neighborhood where your rental property is located.

There are successful landlords in expensive high-end neighborhoods, working class areas and blighted neighborhoods and there are unsuccessful landlords in expensive, working class and blighted neighborhoods as well.  Your goal should be to be one of the successful landlords which can be accomplished in all 3 economic landscapes.

Residential real estate more than anything else boils down to supply and demand, so the first step is to understand rental demand in the neighborhood where the rental property is located.

There are 3 things you need to find out about any rental property:

1) what can potential renters afford to pay?

2) what do potential renters want and expect regarding property condition, renovation finishes and amenities? And most importantly

3) what is your competition (other landlords) offering in that local market?–as a landlord, you are always competing with other local landlords for the best tenants.

Use these 3 factors to determine the cost and quality of the renovations you do (i.e. granite countertops) on your rental before you rent as well as the rental price you offer to charge tenants. Remember, the person with the money always ultimately decides the price, so when you’re a landlord potential tenants have the money therefore they will always ultimately decide the price you can charge to rent. This means that even after you do your analysis, you have to respect what the market decides, which may require lowering your rental price for example if you can’t find a qualified tenant at the price you thought you could get.

Thanks for your question, Clayton. For more real estate information and tips visit my blog at geraldlucas.com.

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