There are literally dozens of options to choose from when one is looking to invest in real estate, and choosing just one can be confusing.

For example, setting up a “cash cow” property to use as a rental can be a great way to generate a predictable cash flow from month to month. Other options include multi-family properties or workforce rentals that can grow your market portfolio.

Even though there are numerous ways to invest in real estate effectively, there is one thing that all of these options have in common. They are all successful because the property owner ran a neighborhood analysis to determine a high likelihood that the area would meet a group of buyer’s objectives.

What does a Neighborhood Analysis entail?

A neighborhood analysis is generally a report that potential investors create to help tabulate a rental property’s potential, based on the surrounding neighborhood’s characteristics.

For potential investors, running a neighborhood analysis can show how whether or not a particular property will be attractive to tenants in the coming year or even well in the future. The analysis considers elements such as local schools, nearby employment opportunities, recreation amenities, and shopping districts. It also considers how these elements will affect the long term value of any given property.

Many expert rental property investors run a general analysis in combination with a broader market analysis. An overall market analysis is like having an entire book on the market, while a neighborhood analysis is like reading individual chapters for each neighborhood.

Many serious investors like to consider both for a few reasons. First of all, a single property might seem like an excellent investment; however, if any of the houses in the surrounding area are undesirable, it could ruin investment potential. Secondly, while the market may appear healthy at the moment, purchasing a property in the wrong location could result in the overall market declining over time.

Important Neighborhood Factors to Consider

Before you choose an investment property, there are a few big picture items that every investor should consider.

1. Location, location, location

This aspect of a neighborhood analysis is generally the most important and absolutely cannot be ignored. The location is the best way to initially approach the property and determine the best use for any individual lot.

Even though most markets have a strong demand for multi and single-family rental houses, running an analysis on a specific neighborhood might reveal that there are issues in certain smaller parts of the market.

For instance, in some rare cases, individual developers might choose to build houses for cheaper fringe areas not serviced by public transportation or close to amenities. While these houses are more affordable to build, they will also make them more challenging to rent in the future. These areas often see an overall demand for housing initially; however, down the line, specific neighborhoods might experience a decline due to the location within the market.

2. Social Perceptions

One of the more subjective factors of the neighborhood analysis is the neighborhood’s social relationships and perceptions. Whether it seems necessary or not, many tenants, buyers, and sellers might have preconceived notions about what a community is or is not, which may impact the property’s overall market value.

One such social factor is the address of the property. If a house or property is located on what is perceived to be a well to do street, the value of that property might increase just based on perceptions.

School districts are another example of social factors that might affect the value of a property. Even potential tenants without children look at this factor since being in a “good” school district generally means that the houses are better and the rent is higher.

3. Physical

Lastly, you should consider any physical barriers that might be present in the neighborhood, such as highways, hills, canals, or railroad tracks. In many cases, houses that are on the “right side of the tracks,” so to speak, can be worth much more than those just on the other side. Be sure to survey the area for physical barriers before investing.

Final Thoughts

Before you invest, it is always prudent to run a neighborhood analysis to determine whether the location is a sound investment. If you need help finding the best investment property in the Orlando area or have investment concerns, the Safetynet Group experts are there to help.