Neighborhood Profile
This is the most affluent type of neighborhood on our rating scale, with higher-income residents and newer homes far above the median price. Area may experience less-than-average incidence of crime. The school districts in this area are top-rated and highly desirable.
Risks & Rewards
Homes in upscale neighborhoods come at a steeper purchase price, resulting in higher entry costs upfront and lower initial yield. However, properties in 5-star neighborhoods can have lower operational risks and better renter stability.
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Neighborhood Profile
These medium- to high-income neighborhoods aren’t as upscale as areas with 5 stars, but possess similar attributes. Area may experience less-than-average incidence of crime. Homes here are generally of high quality and the surrounding school districts are very good.
Risks & Rewards
Buyers looking for quality homes in an area with more manageable entry costs than 5-star neighborhoods should consider 4-star neighborhoods. Yields are generally higher than in 5-star areas but lower than in 3-star neighborhoods, since rent is typically a lower percentage of the property value for these more expensive homes.
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Neighborhood Profile
For buyers who prefer a little variety, 3-star neighborhoods tend to have more inventory than their 4- and 5-star counterparts. These areas typically have decent school districts, above average income levels, and boast a blend of newer and older homes.
Risks & Rewards
These listings often strike a good balance for buyers between risk and reward. It’s easier to find properties in 3-star neighborhoods at median price points with more attractive yields, which can compensate for the somewhat higher risk presented by tenants with lower incomes.
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Neighborhood Profile
This is a lower-income neighborhood with an even mix of owner- and renter-occupied homes. Area may experience slightly higher-than-average incidence of crime. Homes in 2-star neighborhoods are generally older, and local school district quality is below average.
Risks & Rewards
With lower purchase prices come more opportunity for positive cash flow, so buyers looking to see higher yields should explore 2-star neighborhoods. However, these neighborhoods tend to have older homes, and sometimes have greater variability of cash flow driven by renter instability.
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Neighborhood Profile
This is a low-income area with older homes and a low average school rating. Area may experience higher-than-average incidence of crime. Compared to higher-ranking areas, 1-star neighborhoods have the greatest amount of renter-occupied properties, the lowest median income, and highest renter instability.
Risks & Rewards
At the lowest entry point for purchasers, properties in 1-star neighborhoods have the greatest risk as well as the greatest potential yield. In 1-star neighborhoods, investors seeking higher potential returns should be willing to take on even greater probability for renter instability, as well as volatility in asset values and cash flow.
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