Investing in the Suburbs: Is it a Good Option?

By: Sumita Roy

What is a suburb?

A suburb is a neighborhood that is located on the outskirts of a city. It is a semi developed area. It is less populated and developed than the city and more populated and developed than the rural areas. Here the residential and commercial areas are usually set apart. The residents generally have to travel quite a distance to do their shopping or pursue entertainment.

There may be small number of retail shops present within walking distance from the residences. But usually, these are not as pedestrian friendly as the urban locale. Most of the residents in suburbs are commuters. It is common for them to commute to the city to reach their work places. Public transportation is not as good as it is in the city. These are normally located at least 30 minutes away from the housing areas.

Suburbs offer more space than an urban setting. You can get more area for your investment here than in a city. Outdoor spaces such as a back yard and parking areas like garages are almost always present in this kind of property.

Suburbs are mostly habituated by middle income families. They can also belong to lower- middle income as well as higher middle income criteria.

Investing in Suburbs:

Buying a property in the suburbs for investment purpose can prove to be highly beneficial. But it has its own drawbacks too. One should be aware of the pros and cons of it before investing in this kind of property.

1. Pros:

• People in this area search for a more permanent setting than in the city. Usually, you will find more home buyers or long term renters in this area. For example: a couple who cannot afford buying a home in the city to start a family can get a better space at a reasonable rate in this area.
• If you are renting out your property, you can find long term renters who will take care of the property as their own. Residing for a long term usually inculcates a feeling of respect and attachment to the property as a result of which the property is less likely to suffer high cases of wear and tear.
• The rate of per square foot area of a property in a suburb is lower than that of a city. For example the rent of a 1 BHK apartment in the city may be equal to a 2 BHK or a spacious 1 BHK in the suburb.
• Unlike city apartments, you will have a larger outdoor space in the suburbs. Some of these outdoor areas are laid out in such a spectacular fashion that they become the highlight of the projects.
• Residing in this area can prove to be a welcome change for any person who prefers tranquility over noise. You can live a life in a far more eco friendly manner than in the city. More privacy is what you get from this kind of a setting.
• Most of the middle income families living in the suburbs own a car. Travelling by it, you can easily access the city and its neighborhoods. Apart from this, many other public transports are also available like auto, railways, taxis etc.
• Majority of the population migrating to the city belong to the middle income family. It is one of the best options for them to stay close to the city. And an investor has higher options to choose from.

2. Cons:

• Rental opportunity is minimal in this kind of setting. A buyer, you may easily find, but if you want a renter for long term returns, it is difficult to find one.
  
• Suburbs offer less variety of investment. Most of the properties are single property homes. Though in certain areas you will come across two-family homes or large multifamily homes but they are rarer to find in comparison to single family homes. There are also limited options of investment for commercial and retail spaces.
• Public transportation can prove to be a matter of inconvenience in these areas. If one does not own his means of conveyance then it could become an unpleasant setting for him. And even if he does, and your property is far away from the city, he may not want to go for it.
• Some of the suburban areas do not have any entertainment hub in the vicinity. It can also be a turn off for prospective residents.

There are mainly five types of properties available in the suburbs for investment:

1. Single family investment properties: These are usually houses or condominiums bought with the intention to sell or rent it. The main goal of the investors is to buy something you feel under priced and sell it at a profitable rate. Or, rent it out to a single tenant or family for a long time return.
2. Second home/ vacation home for investment: During the summers or vacations you can rent out a property and enjoy returns from it. You can even reside in it for a few days or a season and then rent it out for the rest of the year. Rental returns come on a regular basis if the location is good.
3. Small multifamily investment property: You can own two to four units in a house or building. These you can rent out to two or more different families or sell out at higher interests. It is a common type of investment option for beginners.
4. Large multifamily investment properties: This kind of investment includes owning five or more units. Apartment complexes fall into this category. It can be occupied by the owner himself, or he may have it exclusively rented out to tenants.
5. Office investment property:  It can include tenancy of a single organization, or tenancy of more than one company.
6. Retail investment property: Again you can invest in a small space and rent it out or sell it to a single retailer who is willing to put up a small shop. Or, you can invest in a large store that has multiple units with multiple tenants paying you a good return for your investment.

Conclusion:

I feel it is wise to make an investment in the suburban areas because with the passage of time these areas will undergo as much development as the city next to them had undergone in the last decade. Even developers are coming up with new ideas like township projects, which make these areas self sustaining and a perfect place where one can lead a splendid life at affordable rates.