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These days, a lot of people are moving to the suburbs in search of more space, less noise, and room to grow and spread out. As a real estate investor, that gives you a prime opportunity to buy a suburban home and rent it out as an income source. But is investing in suburban real estate a smart move for you? Or should you stick to urban areas? Here, we'll review the pros and cons of buying an investment property in a suburban area and how to find the right home in suburbia for your portfolio.
The lure of the suburbs
Many people routinely flock to the suburbs to enjoy perks they can't get when they live in a city -- outdoor space, more square footage, and a slower pace of life. But in the wake of the coronavirus pandemic, there's been a boom in suburban moves among homeowners and renters alike. The National Association of Home Builders reported in October 2020 that small metro area suburbs experienced a 10.6% jump on a four-quarter moving average basis. And in the summer of 2020, a number of New York City suburbs exploded as residents ditched Manhattan.
Many city dwellers have grown tired of living in cramped corners and are seeking to head to the suburbs, where they can work from home and isolate more comfortably. And speaking of remote work, the fact it's so prevalent gives more people the option to move to the suburbs now than ever before.
Furthermore, many companies are already planning to maintain long-term work-from-home policies, which means the suburban boom we've seen lately may not be temporary. Rather, a lot of people may seek to stay in the suburbs if they no longer need to commute to an office building.
The upsides of investing in a suburban home
Whether or not suburban living appeals to you, there are several good reasons to invest in a home in the suburbs.
Less tenant turnover
Cities tend to be more transient than suburban areas. Often, cities attract young renters who don't yet have families and want to live someplace exciting until they're ready to settle down. On the other hand, people who move to the suburbs are often families with children who don't want to uproot them as much. The result? You may have an easier time finding longer-term tenants.
A stand-alone suburban home is less likely to be subject to a governing association, whereas if you buy a city property, you may have to follow the rules of a condo or co-op board. That could, in turn, make renting your property more difficult and subject you to restrictive rules.
A lower purchase price
You might pay a lot less per square foot for a suburban home than a city property. That could, in turn, help you preserve cash flow.
The downsides of investing in a suburban home
On the other hand, investing in a suburban property could be a mixed bag. Here are some pitfalls you may encounter.
City homes tend to be smaller than those found in the suburbs. If you buy a suburban home, you may end up spending a lot more time, money, or both on maintenance. Owning a suburban investment property could be especially burdensome if you're planning to be a hands-on landlord, as opposed to outsourcing that job to a property manager.
Difficulty finding tenants
Many people who move to the suburbs tend to want to plant roots and own rather than rent. You may have an easier time finding tenants for a city home than you do for a suburban home.
Less rental income
City homes can often command higher rent than suburban homes. If you buy in the suburbs, you may not enjoy the revenue stream you'd get with a property located in a bustling city.
What to look for in a suburban home
If you're going to buy an investment property in the suburbs, you'll want to choose the right one. To this end, it pays to focus on a few key things.
The state of the home itself
It's easier to address problems in a 1,000-square-foot apartment than it is to overhaul a three-story house. If you're buying a home in the suburbs to rent out, make sure it's in decent shape. Otherwise, you may end up needing to haul yourself out there for continuous repairs.
A great school district
Suburban homes tend to attract families more than singles or married couples without kids. If you're going to buy in the 'burbs, aim for a home in a highly rated public school district.
City homes, by nature, tend to be located near restaurants, cafes, and other amenities that draw in tenants. Suburban homes, on the other hand, don't always offer that convenience. It pays to focus on properties relatively close by to grocery stores, banks, and shops. That way, you're more likely to attract recent suburban transplants.
A neighborhood where property taxes have held steady
Your property taxes could be your greatest expense when you own an investment property in the suburbs. To this end, you'll want to look at not just affordable taxes, but taxes that haven't risen too drastically through the years. If you see large jumps in taxes associated with a specific listing, it could mean the town you're looking at assesses home more frequently than other towns -- not a situation you want to sign up for.
Mistakes to avoid when buying a suburban home as an investment
If you're going to buy a home in the suburbs, there are certain traps you'll want to steer clear of.
A home that's too high-end for the neighborhood
When you own a city apartment, there are only so many improvements you can make. But when you're talking about a large home on a giant plot of land, the possibilities are a bit more open. But be careful not to buy the fanciest or most updated home in the neighborhood, because you might struggle to command enough rent to cover your mortgage costs.
A home with too large a lot
One of the reasons so many people flock to the suburbs is to enjoy having private outdoor space. But that doesn't mean you should buy a home that sits on two acres of land. As a landlord, you'll be responsible for outdoor maintenance like lawn care and snow removal, and the more property you have, the more difficult and expensive a prospect that will be.
A home on a busy road
Many people come to the suburbs for quiet and privacy. As such, you could have trouble renting out a home on a heavily trafficked street.
Is a suburban home a good investment for you?
As a real estate investor, you're no doubt aware that every decision you make comes with an opportunity cost. If you buy a home in the suburbs, that's one less city property you're able to own, so you'll want to make sure it's the right call. Your best bet in this regard is to weigh the pros and cons above. Also, go with your gut. While a lot of people are moving to the suburbs due to the pandemic, that trend may prove to be somewhat short-lived.
Also, these days, you may actually get a better deal on a city home than a suburban one. In Manhattan, for example, there's diminished demand for residential space, so you may have an opportunity to snag a good deal, whereas if you attempt to buy a home in a New York City suburb, you could wind up paying a premium. Do your research before diving in, because while a suburban home could very well be a solid investment, you may also find that you're more comfortable sticking to city properties, especially if that's a market you're already comfortable and familiar with.
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