How To Narrow Down On The Right Neighborhood For Real Estate Investing
Real estate investing can be a very profitable career
. Availability of good deals or the cash to get started may not be the problem. One common problem is to buy houses in the right neighborhood so it is easy to sell or rent them out.
In this article, we look at how the neighborhood affects your profit potential as a real estate investor.
Of course with time as you buy more houses, you become better at analyzing neighborhoods. Unfortunately it may not be immediately obvious if a neighborhood is good or bad. When the times comes to sell or rent out, this becomes pretty obvious.
And you will not need to guess if the neighborhood is a war zone.
I once bought a house in a war zone. The previous owner owned it free and clear, bought all cash two and a half years before. He planned to put it up for rent. Unfortunately the house was vandalized a few days after he bought it. He fixed it up, but it got vandalized again. The second time round the AC unit and all copper plumbing was stolen. The neighbors alerted the city when they noticed the house was flooded.
If this person had taken the time to analyze this neighborhood, he could not have taken the losses he took.
As a wholesaler, I got the property under contract and got an inspection done on it. Of course, the inspection report was not pretty. I ended up negotiating $10,000 more because of this report. All I did was remove the carpet and I flipped it for a tidy sum.
Here are a few factors that affect the neighborhood you invest in
i)Business model
If your business model is luxury homes, of course you will stick to high end areas. If you rent out properties or you wholesale them, then you will need to stick to middle income neighborhoods.
There are more houses for sale and potentially more deals than other neighborhoods. In my area, this price range is $100,000 to $150,000.
Avoid war zones as much as you can. You can check crime rates with the local police department or city. Since most people invest in a local neighborhood, this makes things easier.
ii)Exit strategy
In the example above, since my exit strategy was to flip it, I did not have a problem with the neighborhood. I let the seller know I intended to flip it. I did not intend to be stuck with that property if I did not get a buyer.
Similarly there are some neighborhoods that are very popular with renters. This means that you fix them up with your exit strategy in mind. It costs more to fix a house for sale than a rental.
iii)Location within neighborhoods
Schools, shopping centers, parks and other recreational centers and other facilities affect the marketability of properties. It is easier to sell a house near a school than one where kids will need a bus to go to school.
by: Simon Machcria
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