Location. Location. Location. The three most important factors for a retail business apply to property investment as well. As you’d guess, the location of a rental property has a significant impact on its value, and your success as a property manager and property investor.
But you’d be surprised at how many new property investors are be fooled by the perceived value of a rental home in an inferior part of town. Admittedly, when comparing similar houses for rent, in two different areas, it is very tempting to pick the one that’s half the cost of the other. But consider these factors:
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Regardless of how nice a rental property may appear inside and out, the neighborhood ultimately determines house rental attractiveness to the most qualified renters.
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The risk of vandalism and theft for rental houses is significantly higher in some neighborhoods
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Turnover rates are generally higher on homes for rent in distressed areas
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Less desirable neighborhoods usually have lower rates of owner-occupants.
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The threat of crime against you, your tenants, and contractors is higher in lower income/rent areas.
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Property values usually increase at a higher rate in higher income/rent areas and vice-versa
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Tenant screening is much more involved (more rejections) in lower income areas.
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Eviction notices run higher in inferior areas.
After years in property management I finally realized one day that I was spending twice the amount of time on rental properties in less desirable neighborhoods but, because our fees were based on the rent, our compensation was lower. So we worked harder but were paid less on these types of rent homes. As a result of this epiphany I imposed a minimum fee that was based on managing a property with a considerably higher rent. The result was that I was seldom ever again the property manager for rental homes of this type. It also taught me the valuable lesson to never buy investment properties like these either.