How to Choose the Right Neighborhood To Invest In

How to Choose the Right Neighborhood To Invest In

Investing in real estate has continued to be a great long-term investment.

Those who choose to invest in real estate will enjoy long-term value appreciation and equity creation as well as extra income and cash flow each month. When you are evaluating a potential real estate investment, there are many important factors to consider.

One of the most important factors you will need to consider is the neighborhood and location.

There are various factors that need to be considered when you are evaluating a neighborhood or real estate investment location.

Some features you should look for in a neighborhood can include:

  • good schools
  • access to public transportation
  • walkability to shops and restaurants
  • low crime rates

All of these features should create rental demand, which should be evidenced through local occupancy and rental rates.

As you are evaluating a new rental property location, there are various tips you can follow to select an ideal property.

Narrow Your Search Sorting by Class of Properties

Once you are ready to start looking for a new rental property, selecting the best market and neighborhood is very important.

However, you will also want to make sure you are choosing the right type and class of property for your investment.

For a residential investment property owner and investor, you will have various types of assets to consider.

These can include purchasing:

  • single family homes
  • multi-unit properties
  • single condos or townhomes located within a larger community

It is important to evaluate the benefits, disadvantages, and costs of each option.

Generally, real estate is broken down into different classes, which are Class A, B, C, and D.

There are differences between each class that should be considered:

  • Class A Properties – A Class A property is generally characterized as a luxurious property located in a high-end neighborhood that would command both high sales prices and high rental rates. These can include new construction properties or older units that have gone through significant renovations.
  • Class B Properties – A Class B assets are typically more affordable than Class A and are in nicer neighborhoods, but do not necessarily have all of the same luxury upgrades. You will typically find these in safe and wealthier communities.
  • Class C Properties – A Class C homes are typically made of quality materials and located in a decent neighborhood. While they may be in good condition and livable, they will probably not have any luxury upgrades or modern stylish finishes.
  • Class D Properties – A Class D asset is usually considered one that will need a considerable amount of work to be done. This can include both deferred maintenance or more significant structural improvements. While they can be more difficult to rent, they will offer more potential for those that are able to complete the necessary repairs.

Review Recent Sales Comps

Selecting the right location for your real estate is always very important.

However, you will want to ensure you are making a sound investment based on the market value of the asset.

Before investing in any area, it is important to check recent sales comps. These will give you a clear picture of what any home in the area should sell for.

As you are evaluating a potential purchase, you should compare the price-per-square-foot, the number of bedrooms and bathrooms, luxury upgrades, and other features to other homes that have sold.

This information can help you identify good deals and even find a way to further negotiate an even better deal.

Find Average Rental Rates

Beyond getting a good deal on the purchase of a property, you need to ensure the rental market is strong enough to provide you with a good investment return.

Beyond paying a mortgage, you will also have:

  • real estate taxes
  • insurance
  • maintenance
  • utilities
  • and other costs

Ideally, you should be able to earn a rental income which is well in excess of those costs. To do this, you will need to do the right diligence in the market to ensure you are making a sound investment.

An important part of this process is to find the average rental rates in your local area. There are various online resources you can use to quickly find the average asking rent in your area.

This can typically be broken based on the type of asset you own, number of bedrooms, and other features. This will give you a good idea as to whether you can receive the rent you need to meet your investment criteria.

It is also important to check local demographic information to ensure there is a good pool of potential tenants.

Some items you should consider will include the:

  • population in the area
  • median income
  • employment rates
  • percentage of renters versus property owners
  • average age of the residents

Find Rental Comps

While it is important you invest in a market which will provide good rental and occupancy rates, you also will want to look at actual individual comps to see how your target investment aligns.

There are various free real estate listing websites which will show any open rental units available for lease. It is always a good idea to review all of these comps in the immediate area to see how they compare in terms of asking rent, specific location, unit size, asset class, and other features.

You can always just call local property management companies and have them tell you rental rates as well.

Based on this information, you will get a better sense as to whether your asking rent is reasonable.

Learn About the Area

As discussed, the location of a property is very important and can have a dramatic impact on the overall return of your investment.

Due to this, it is very important that you learn as much about the area as you can.

While sales comps, rental rates, and occupancy percentages are very important, there is always more that you can do to learn more about the area.

This can include meeting new people, speaking with local residents, networking with other investors, and even talking with the local government about potential changes in the area.


While you may go into real estate investing on your own, it is always a business which will require good professional relationships.

As you will want to have support in marketing, leasing, and improving your property, as well as finding new assets in the future, it is important that you try and meet new people that live and work in the area. Having good professional relationships with local real estate agents and brokers, mortgage brokers, contractors, and city employees will be helpful.

These professionals can offer guidance and support and even help you find future opportunities before they are available to the larger market.

Talk to Local Homeowners

When you are looking for real information about a new neighborhood, sometimes nothing is better than speaking with the local homeowners.

While some people may be hesitant to speak with you, others can be open books that will provide you with a lot of great information about the area.

They can give you a sense of what it is like to live in the area in terms of noise, disturbances, friendliness of neighbors, and other information you will not be able to find doing standard research.

Consult City and County Economic Departments

Another way you can get some good information about a neighborhood is by speaking with the local government.

When you are looking at properties and evaluating neighborhoods, you should also be concerned about the growth and direction of the area and going right to the city and county economic departments is a good idea.

The city and county economic departments can offer a lot of real-time data about housing prices, real estate and population trend statistics, and other important data.

Further, they can provide you with insight into plans for infrastructure, zoning changes, and other approved data that could have an impact on the neighborhood in the future.

Areas that are getting a lot of positive development and investment should be poised for improvement and could improve your return on investment.

These groups can also give you insight as to whether there are any restrictions, or proposed changes, that could affect your ability to lease the investment property.

Look for Good Schools

As you are looking to purchase a new rental property, finding a home that is located in a good school zone should always be a priority.

Anyone that has school-age kids will want to live in an area where they can send them to a quality public school. Due to this, having a home located in a good school zone will always have a certain level of demand.

There are various online tools that you can use to validate the quality of the schools.

While you will probably be able to find an overall school rating, you can get further data and detail by evaluating:

  • the school’s test scores
  • parent satisfaction ratings
  • funding and budget
  • teacher to student ratios

All of these will give you a sense of a school’s reputation today and the direction it is heading.

Use as a Tool

When you are going to invest in real estate, it is also a good idea to invest in the tools you need to properly evaluate your investment options. One great online resource that you can use is

This online resource is very convenient and easy to use. Once you have access, you are able to type in an address of any home in the country. You can then immediately get great information that you can use in your evaluation process.

This will include median sales prices and rental rates, crime rates, demographic information, school ratings, and other data that is important and will have an impact on the potential success of your investment.