Where are the best areas to buy real estate investments? This is one of the most common questions we hear from investors.
The answer isn’t the same for everyone, but there are a few basic principles you can use to guide your decision.
The most basic step is to start close to home. As the saying goes, real estate is local. The knowledge you already have from being a local investor is one of the biggest tools you can use when analyzing a deal. You’ll know the neighborhoods, schools, employers, and even the small details that don’t always show up in the numbers. That kind of insight is hard to replicate if you’re looking at a market you don’t live in.
But once you’ve considered that, how else can you decide which areas are best?
Cash Flow
One way to answer the question is to focus on cash flow. The best areas, as determined by this approach, are the ones that can generate the strongest monthly income after expenses.
In many markets, inner-city properties offer this kind of performance. The buildings might be older and your tenant base might not always be as strong, but the rent-to-price ratio often looks attractive. That can mean:
- Lower initial purchase prices
- Higher cash flow compared to suburban or rural properties
- The ability to scale faster by acquiring more units with the same amount of capital
The trade-off is that these properties often come with higher maintenance costs, more frequent tenant turnover, and both economic and physical vacancy challenges. And because of those factors, they may not appreciate as much over time.
Appreciation
The flip side of the coin is to focus on appreciation. This means choosing areas where cash flow might not be as strong, but where long-term value growth is more likely.
For instance, you could purchase several townhomes in the best school district in your county. These properties may attract higher-quality tenants who stay longer. Your expenses will be higher, and your cash flow might look lower in the short term – but when you go to sell years later, the appreciation is usually more significant.
This approach prioritizes benefit in the future rather than benefit right now. The value of the property itself becomes the real return, even if your monthly numbers are leaner along the way.
Balancing the Two
So which approach is best? It depends on your investment goals. If you need income today, cash flow might be your priority. If you’re more interested in building long-term wealth, or you’re likely to hold a property for many years, appreciation may carry more weight.
And of course, you don’t always have to choose one of the other. A balanced strategy that includes both types of properties can diversify your portfolio and spread out your risk.
Conclusion
The best area to buy real estate depends on what you’re hoping to get out of the investment. Cash flow gives you benefits now, while appreciation is a benefit later. Keeping both in mind – and ideally holding both types of properties – can help you build a portfolio that performs today while also positioning you well for the future.
Ready to purchase your next investment property in a new area? Work with expert advisors who have the local knowledge you don’t. Contact us today to get started identifying a location that will work for your strategy.
