We’ve all heard the old saying: Location, Location, Location….. Often what “Location” refers to are the positives of the neighborhood, for example: is it by water, are the streets tree lined, does it offer parks and green space, how are the schools? These are just a few of the criteria that affect property value. You may ask why, as an investor, are these things important to me? Isn’t it just all about the bottom line and the profit? Well, these criteria can have a direct effect on that bottom line. It can take longer to sell a house in an undesirable neighborhood than a desirable one as well.
We do an extensive analysis of location in our OTA Real Estate Wholesale and Fix and Flip classes, it’s called scouting locations. This is a tool and an exercise that helps new investors get a good understanding of the property value in the area they are investing in. Here are a few of the key criteria we focus on.
Schools – This is the single most important element in determining a good residential neighborhood and one you need to be aware of as an investor. If you are renting the property, you will want to attract good tenants, and good tenants are going to want good schools. School data is something that is measurable and the data is relatively easy to find. Often families start by looking for good elementary schools because they have small children, however the schools they feed into (middle schools and high schools) are just as, if not more, important. Property values will also increase quicker if a neighborhood school is awarded as a National Blue Ribbon School; depending on the area this can increase the value 5%. This information is provided by one of the tools available on our “Deal Board”.
Walkability – As an investor you want to be aware of changing demographics, as they can affect property value. Currently, people are looking at spending less, not more time in their cars. A recent study showed that an increase in access by walking to stores, schools and even the post office can increase the value of residential property. Not only are people looking for this for the convenience of things being within walking distance, but also because lifestyles are increasingly based on healthy and active choices. There are several tools that will help you assess the “walkability” of a neighborhood.
Location or Neighborhood over “the house” – A fix and flip can change a beat up house into a beauty but that doesn’t fix the neighborhood. Said another way, the physical elements of a property can be changed much easier than the culture of a neighborhood. From an investment stand point, if people are renting to try and get their students into a good school or walkable neighborhood they will be more accepting of a bathroom that needs updating.
Crime – Local crime stats and registered sex offenders. According to a study conducted by Florida State University in 2010 and published in Regional Science and Urban Economics, they found that, “… of the two major categories of crime (property and violent), only violent crimes exert a meaningful influence upon neighborhood housing values. A 10 percent increase in violent crimes within a neighborhood is found to reduce housing values by as much as 6 percent.” In my experience, I have also seen that if there are registered sex offenders in the area this can affect property values and sales as well.
Now that you have a little more insight, go out and analyze your area.
Diana D. Hill – email@example.com