How to choose a location for your investment property

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Ask a Lender
March 24, 2017 | Updated September 20, 2017


Key Points

Selecting a neighborhood for an investment-property purchase

  • Your budget dictates which markets you can afford to invest in.
  • Infrastructure and amenities can help you command higher rents.
  • Look for areas with low crime rates.
  • Proximity to a good school district can help you attract families as tenants.

When buying real estate as an investment property, one of the most important considerations is the neighborhood surrounding the property.

There are many factors that go into deciding whether a neighborhood is a “good” or “bad” one to invest in. By looking at all the factors, you can get a good sense of whether the neighborhood is a good investment bet.

Location first

You’ve likely heard the old adage that there are three critical factors with any real estate investment: “location, location, location.” While it’s something of a cliché, there’s a reason real estate agents utter it so frequently.

A property’s location can make or break its value. What should you look for when evaluating a neighborhood for a potential investment-property purchase?

One of the biggest factors that will influence which areas you can consider for an investment is your budget. Depending on what you can afford, you may be priced out of some markets. Do some research into the various markets available to you, and see whether you are able to afford property there.

Infrastructure is another consideration. Areas with better infrastructure command higher property prices, while potential tenants tend to avoid areas with outdated or inadequate infrastructure.

Crime, schools and tourism

Take a look at crime rates in the area. It can be more difficult to rent a property in a high-crime area. Higher crime rates also could leave your property more vulnerable to property crimes, such as vandalism, which could cost you money for repairs.

It shouldn’t be difficult to find local crime statistics online and see how they compare to national statistics. If you need further data, contact the local police department.

Another factor to consider is the school district that serves the target investment property. If you want to rent out the property to families with children, it will be more attractive to that demographic if it’s located within the boundaries of a good school district.

Consider how often the area is visited by tourists, and what kinds of tourist attractions are nearby. If you plan to list the property as a vacation rental, this is a particularly important consideration — one that may not come into play if you plan to rent the property as a residence.

For rental properties, these factors center on the question of whether you can attract tenants, and whether you can charge rents high enough to earn a return on your investment. If you find a property in a nice neighborhood, with lots of nearby amenities and infrastructure, but nobody can afford to pay the rent necessary to ensure a return on your investment, you’ll run into trouble.

Multiple factors come into play when deciding which investment property to buy — how much it costs, what condition it’s in, etc. But those considerations could be rendered meaningless if the property turns out to be located in an undesirable location. While it may take some extra time and effort, it’s worth researching the neighborhood in which a property is located to make sure you’re putting your money into a promising investment.

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