If you own a rental property and you manage it successfully, you might make an easy profit of a few thousand dollars every year. It makes sense that you would want to buy an additional property so you can multiply your earnings even further.
One increasingly appealing strategy for real estate investors interested in scaling is purchasing multiple properties in the same neighborhood. But why is this such an advantageous real estate investing strategy? And what can you do to see better results from it?
Why Own Multiple Properties in the Same Neighborhood?
Let’s start by looking at the motivations for owning multiple properties in the same neighborhood. These are some of the best benefits:
- Doubling down on a great area. As any real estate investor can tell you, one of the biggest challenges to finding profitable real estate is choosing the correct area. The right area will have relatively low property prices, relatively high rent, high demand from tenants, and a solid trajectory for the future. Once you find a hypothetically perfect area, why would you want to buy property anywhere else? Purchasing multiple properties in the same neighborhood allows you to double down on a strategy you already suspect will be highly successful.
- Local accessibility. It’s also beneficial to have many different properties in the same area, especially if you’re conducting all the maintenance yourself. This benefit is even stronger if you already live close to your first property. If you’re only 10 minutes away from all your properties at all times, you’ll be much better able to respond to emergency requests and handle potential tenant issues.
- Control over neighborhood dynamics. Even better, as you accumulate more properties in a given neighborhood, you’ll have more control over neighborhood dynamics. As a simple example, if you spend more time upgrading the external appearance of your properties, eventually, the entire neighborhood is going to look better. You can also spend time and effort cleaning up the roads and sidewalks, or installing new features that make the neighborhood better for everyone. Over time, this can help you increase your property values and what you charge in rent.
- Competition mitigation. To an extent, securing more properties in a given area allows you to mitigate competition. An excessive number of competitors in the neighborhood can force prices artificially downward, compromising your profitability in the process.
Of course, there are also some downsides you’ll need to consider.
- Added complexity. As you might expect, managing multiple properties in the same area can lead to added complexity. If you have a single tenant issue, it might spiral into an entire neighborhood issue.
- Fewer options. If you’re only looking at one neighborhood, you’ll be artificially limiting the number of real estate options you have to choose from. There are only so many houses, and not all of them will be suitable as rental properties.
- Lack of portfolio diversification. There’s always risk when investing in property, but that risk multiplies if you don’t employ some form of portfolio diversification. Seasoned real estate investors often invest in many different areas simultaneously, so if any given area crashes, their portfolio doesn’t take a massive hit. If you’re only investing in one neighborhood, and that neighborhood starts to decline, you could suffer serious losses.
Increasing Profits in a Neighborhood
So, what steps can you take to increase your profits if you want multiple properties in the same neighborhood?
- Start with the right area. Your results are heavily contingent upon your ability to select the right area from the outset. If you choose a good neighborhood, and buy many properties in it at the right time, you could make a ton of money. If you choose a bad neighborhood, or if the neighborhood declines in appeal, your entire financial model could collapse. Do your due diligence, look to the future, and review many different options before pulling the trigger.
- Add one property at a time. Even if you have the money for it, don’t buy several properties at the same time. Instead, add properties one at a time. This will make it much easier to manage your real estate portfolio, and will also allow you to practice a form of dollar cost averaging (DCA), minimizing your potential losses. Once you feel more confident in your investing strategy and in the dynamics of this neighborhood, you can scale up your efforts and purchase more properties.
- Get to know other landlords and property owners. Networking is an important strategy for property managers and real estate investors. Spend some time getting to know other landlords and property owners in the neighborhood. If you have good relationships, you can work together to solve common problems and ultimately boost the image and reputation of this area.
- Beautify the neighborhood. Invest your time and money into beautifying the neighborhood. Even small steps, like planting gardens and keeping the sidewalks clean, can make a big difference in how people perceive the area. Your tenants will be happier, your properties will look nicer, and you will eventually generate more demand.
- Control your price increases. As the neighborhood increases in value, you’ll be able to increase rent. However, it’s important to increase rent gradually and only when warranted. This way, you’ll have less tenant attrition, but you’ll still be able to increase profitability.
- Build good relationships with your tenants. In line with this, it’s important to build good relationships with your tenants. If your tenants truly enjoy living at this property and they feel good about you as a landlord, they’ll be likely to stay longer – which means they’ll pay much more in rent over time. Proactively manage issues, show appreciation, and take good care of the property to form stronger relationships with your tenants.
Green Residential can help
Are you interested in increasing the profitability of your rental properties? Or are you in need of guidance and support for your rental property management strategy? Green Residential can help. Contact us for a free consultation today!