Should you buy more properties within the same neighborhood, or should you diversify across a larger area? You have some ideas about what kind of properties you want to buy. Now you have to decide where.
Spoiler alert: There isn’t a right or wrong answer to this question. Your goal, of course, is to try to figure out which scenario is the best and most profitable for you. But there are a number of things to consider. Let’s walk through the pros and cons of each.
Investing in a Single Neighborhood
The biggest benefit of owning several properties within the same area is convenience. You won’t have to travel very far to visit your properties, and neither will any maintenance people you hire. Your properties will be easier to manage, in general, if they are kept within about a 20-mile radius.
However, if you take this approach, one issue that could come up is that neighbors will figure out your strategy, causing you to have to pay a premium. For example, let’s say you are trying to buy up all properties that become available on a particular street. If the homeowners in the area get wise to this, then they (the sellers) will have the upper hand when it comes to negotiating with you.
Spreading Investment Properties Among Several Neighborhoods
As with a financial portfolio, there is usually strength in diversification. Spreading your properties around will help you avoid problems if one particular neighborhood experiences a decline.
Also, buying properties in different neighborhoods could help lessen the impact if one area is hit with a natural disaster. If a flood strikes one area and that’s where all your properties are, you could take a huge financial hit.
If you plan to do all or most of the property maintenance and renovations yourself, and if you plan to manage the properties yourself, you should seriously consider how much you want to drive during the course of a week. Do you have a job in addition to your landlord duties? Think about how much time driving to your properties could take out of your week.
Oftentimes, investors who own multiple rental properties across different geographic areas are people who hire management companies, such as AANDA Consulting. If you are thinking of going this route, AANDA Consulting can help with your investment property management needs.