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? Or possibly go the other way to include exurbs? 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.