Depreciating Areas

[Amy E.]

I live in a rural area and changes in the housing market tend to happen slowly.  Additionally, we've got a ton of land and as neighborhoods fall "out of style", we just build new ones!  Right now, I can hit the 2% rule or close to it in solid Class C neighborhoods, but the houses are unlikely to appreciate and may even depreciate (although as the market has rebounded, the values in this area have started increasing so that is promising).  My strategy is to buy and hold, but I do plan to sell in about 15 years or so.

I currently own two properties in one particular neighborhood with great returns.  Because I wanted to spread out my investment area, I purchased a third house in a slightly nicer neighborhood across town.  The return is still good, but essentially I paid more for a 'nicer' house with less return.  That seems a little backward.  I'll probably be able to buy house #4 this winter, though I've already started looking for deals.  And guess what, the best ones are in that very first neighborhood I found....

I really have no desire to own 300 houses, or anything like that so let's limit this discussion to DIY investors with 20 SFR properties or less. Is it detrimental to invest only in one neighborhood, or even type of neighborhood? For those of you that own 5-10 homes and manage them yourself, are they all in one area or spread out? Are you even worried about the neighborhood depreciating?