Money Making Neighborhoods: Are you leaving money in your backyard?
What types of neighborhoods should you be looking for properties in? When flippers start out, a main concern most have is, “What type of property I should focus on? Should I invest in high-income neighborhoods, middle-income neighborhoods or low-income neighborhoods?”
There is a “sweet spot” that we lean towards that helps ensure quick turnaround times and nice returns. When working in high-income neighborhoods, there is definitely the possibility for a larger return, assuming you are able to sell the home quick enough so that it doesn’t start eating into your possible profits as you continue paying the monthly mortgage. Higher end homes are always going to take longer to sale, the majority of the population can’t afford them. So by strictly renovating luxury homes, your buyer pool quickly shrinks. The level of rehab you perform on properties in wealthy communities can quickly add up. A simple carpet replacement and new layer of paint won’t cut it. This can quickly eat into your budget and final profit.
Low-income neighborhoods have their own set of difficulties. While you can pick up properties easily and cheaply, you’re going to have trouble finding qualified buyers. Often people living in low-income communities struggle with their credit. The possibility of buying and selling homes are still here, same as high-income neighborhoods, but it’s going to take time to find a buyer. Just like luxury homes, you put yourself at risk of holding onto the property for an extended amount of time.
So what IS the “sweet spot?” You guessed it, middle-income! Because the majority of the population falls within this category, your buyer pool is endless. There is constant movement in the middle-income population. Millennials are growing up, looking to move from the city into the suburbs. Rent is rising, which pushes people to buy rather than rent. Middle-income citizens are what makes America go. This is where most of the money is spent. In the middle-income range you can expect that your house can move quickly because you are targeting more buyers who are qualified and eager to purchase their future home.
The more experience you gain, the easier it will get to invest — in any market.