How Crime Rates Can Impact Tenant Quality and Property Value
Crime rates are up…should you be concerned?
As the marketplace slowly shifts from being a seller’s market to a buyer’s market, you will have more opportunities to add to your portfolio whether it’s your first investment property or your next. However, a lot has changed since the pandemic, specifically the rate and types of crime in the U.S.
Communities that were once safe and thriving have been stricken with blight or overridden with crime. Towns and neighborhoods that have converted to higher investment property ratios and have high rental occupancy also have an increase in crime. Are you assessing your investment property’s community as well as your property’s income potential?
More and more investors are adding to their portfolios properties which are out of their general market or in markets they are not familiar with. When investors are “distant” landlords, the tendency is to dismiss the most important factors that a high-quality tenant will consider: safety.
In this article, we want to provide tips that will help your due diligence when seeking a new property to add to your portfolio.
Why is crime awareness important to investors?
As an investor, you must protect your investment: the property and the cash flow it generates. Ideally, you want to have a property that is in good condition or has the bones to be upgraded to an attractive place to rent. However, many investors focus too much on the cash flow potential and the property’s condition, neglecting the necessary research into the property’s history, street, neighborhood or town as it relates to crime impacts.
When assessing a property, investors must evaluate the property from the perspective of a potential tenant. People want to live in a safe, secure home in a community with the resources that promote safety and well being. These elements are high on the priority list of a quality tenant who could potentially rent from you for years, provide reliable cash flow and be a responsible tenant who respects your property.
The ROI value will demonstrate itself in these ways:
You’ll attract higher quality tenants
There will likely be less risk to damage to your property
You’ll have less expenses from vandalism or burglaries
Your insurance premiums may be less
Your tenants will likely renew more often
You likely will have less expense for “crime-proofing” your property
Your property will appreciate more rapidly
You’ll avoid low-quality renters who are more likely to damage your property and be delinquent on rent
What to look for regarding crime
Aside from the structural and cost analysis factors that all wise investors evaluate, here are things to look for related to crime when investing in a property:
Get eyes on nearby neighborhoods. If you can’t do it yourself, have your local realtor or property manager drive the surrounding streets assessing the appearance of other homes and businesses. Sometimes a neighborhood that appears decent can bump up to a blighted neighborhood which can attract the criminal element.
Look for patterns in types of crime. Different types of crime impact the appearance of neighborhoods, such as vandalism, illicit drug use and property damage.
Observe outdoor activity. When residents feel safe, they are out and about. Children are playing in the yards and sidewalks, neighbors talking to one another, there’s general activity and play in the community. You may need to make your observations at different times of day and different days of the week, such as on the weekends or after work and school hours to get a well-rounded feel for the neighborhood activity.
Search local news broadcast recordings. TV news and newspaper websites will have all sorts of content, videos and coverage on crime that you can easily search by keyword. Make note of the trends, when they occurred and other aspects that can help you get historical information over the past year.
Assess the police and fire activity. Map the police and fire stations as well as hospitals and if the hospitals have a Level 1 trauma center. As an example, in the City of Detroit, a study was conducted to correlate the amount of violent crime in proximity to Level 1 trauma center hospitals. They found that the majority of violent crimes occur in proximity to hospitals, in most cases less than 5 KM (click here for study). Assess police crime reports and try to find statistics your local PD and FD have regarding crime reports for the area you’re interested in investing. Also, a noticeable police presence can either be reassuring or a red flag. Understand what local law enforcement is doing to improve public safety.
Property value history. There is hard evidence that there is a correlation between property values and crime rates. As a community becomes blighted (or improved) you will see evidence in a regional property value trend report. Seek such reports from the regional realtor office or county property appraiser.
Interview property managers. Whether you are shopping property managers or already have one, interview them about their experience of crime with other investors’ properties. They may not be able to provide details due to privacy, however, they can give you a general idea of the crime impacts on investment properties and what you can do to make the best choices for a safer property.
Research vacancy rates. Understand how many homes are vacant in a neighborhood as it can be an indicator of high turnover due to crime. Get the facts from your local resources and realtors as well as property managers.
Assess the commercial vibrancy. If the community has a vibrant and active commercial district, look for indicators of crime such as gates and barriers over glass to prevent burglaries and other signs of security measures. Are the businesses well lit? What are their hours? How is parking? Do they have visible signage? Is there trash littering the area? These are visual indicators that can help determine if the commercial districts have issues with crime. You can also go in and ask the proprietor. You’d be surprised how much local business owners know about local crime or incidents related to safety.
Resources for researching crime rates
For properties in specific neighborhoods, there are a few social media apps that typically will have a community or town-related group you can search. Facebook is particularly known for this common community-grouping, but you can also use the Nextdoor app as well. Many of the members of these groups post incidents that often go unaddressed by local law enforcement.
Here are a few additional crime-related resources to help your research (your best prospective tenants will be checking these sites as well):
Also check with the local police department and municipality to get any published crime reports.
Your property is a lifeline to income—look for communities with low crime statistics. Protect your property by being aware of the risks in the community you own property. Tenants with children will research sex offenders. Women will be researching break-ins and crimes against women. All quality tenants will always want a safe home and well-lit and cared for community to live.
Next week’s article we’ll share tips to make your investment property more attractive to higher-quality tenants who value safety.