Target neighborhood analysis and evaluation

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Target neighborhood analysis and evaluation

Tom Wilhelm
Investor · Arlington, MA · Member since 2010 · 18 posts · 1 vote

There seem to be a few "what's the best city?" threads out there recently, but I'd like to dig a little into something related but far more specific/important(?), not to mention one of the next tasks my selected strategy (MF buy/hold) requires: neighborhood selection

I live in eastern MA, which means that finding a nearby neighborhood where I might find good cashflowing deals is rather difficult. In most towns in the Boston area the numbers simply aren't amendable to a buy/hold landloard strategy. Even on first glance this is obvious.

So I'm spreading the net further, not so much that I'm considering an "out of towner" strategy (valid though that may be), but enough that I need to identify a set of solid objective criteria to help me to determine which neighborhood(s) on which to focus. Some criteria I might consider for example: vacancy rate, rent/purchase ratio, area job growth, etc. This isn't about choosing one metro area over another. This about about choosing which specific area of a particular metro area in which to invest.

Beyond that, I'd also like to know if anyone uses any particular tools or formulas to evaluate neighborhoods before starting to look for specific properties.

So:
1. What criteria matter to you in deciding whether a specific street/neighborhood/town are a good investment target?
2. How do you crunch the numbers on those criteria?

Looking forward to responses from fellow landlords...

Thanks!

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Thomas C
Brick, NJ · Member since 2012 · 7 posts · 2 votes
13y

I agree with Joel! Make sure that you take a ride after dark in the area where you are thinking on investing in. You will be surprised how some neighborhoods change when the sun goes down..

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Hi Tom,

    I am more in the commercial investing arena. Some things to look at is financial health of the county and city you are investing. Schools, road infrastructure, building permits, and the land use plan current and in the future.

    The health of the county or city is important as projects for growth are often split out between a developer, the city or county, and the state for improvements. Many states have budget shortfalls so while many projects are approved they sit as they cannot be funded solely by the local municipalities.

    Pay attention to the trend of the property tax rates and also the water/sewer rates to see If both are trending upward every year and by what pace?? Some area have really old street systems that will need a bunch of money to replace.

    The current land use map will show where growth and zoning is today and the future land use map (often goes out 15 to 25 years at a time) will show what direction growth is planned for and what kind of zoning they see for it in what areas.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Crime rates trending and median income levels is important as well as the amount of violent to non-violent and petty crime.

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  • Marc Bodinger
    New York City, NY · Member since 2012 · 253 posts · 7 votes
    13y

    I agree with Joel, you need to do your homework on the municipality to see what is going in the area. Is the town building up? Slowing down? These factors all play a role in determining where to invest your dollars in a property.

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  • Thomas C
    Brick, NJ · Member since 2012 · 7 posts · 2 votes
    13y

    I agree with Joel! Make sure that you take a ride after dark in the area where you are thinking on investing in. You will be surprised how some neighborhoods change when the sun goes down..

    1Reply
  • Tom Wilhelm
    OP
    Investor · Arlington, MA · Member since 2010 · 18 posts · 1 vote
    13y

    Great responses, guys. Thanks!

    Here's what I've hard so far:
    Vacancy rate
    ARV to rents ratio
    Tax/utility rate trends
    School quality
    Infrastructure maintenance
    Current/future land use plans
    Crime rates
    Median income
    The "drive through at night" test

    I think all of these, even the ones i don't fully understand yet, are clear indicator of an community's health. I'm sure there are others as well, so please continue to add to the last.

    @joel owens, can you give me when example of how land use planning might play into a decision to invest in an area?

    I dont want to get too far ahead, but the next mental steps appear to be:

    1. Assess which criteria are "core", i.e. which might be used for initially coming up with possible options, which are important later on for narrowing down your options and which are really optional/nice to haves.

    I suppose there is some dependence on strategy here. But hopefully there are a last a few sensible guidelines from which to begin...

    2. One I have some criteria, the numbers themselves come into play. For example, a vacancy rate above N% might be a deal breaker, while a vacancy rate a little below that means it's still possible, but far below N% and it's a major plus...

    Thanks again and keep the ideas coming...

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  • Scott W.
    Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    13y

    people overanalyze things; the truth is, there is no perfect scenario. i crime-ridden area will still appreciate, though maybe not as much as a nice town. you may get 5% appreciation in a great school district & 1% in the ghetto - but the cash flow will be higher.

    mass cost of living is higher but that should mean the rent is higher. and so are your barriers to entry.

    &, really (which i totally disagree with) those on BP say to ignore appreciation altogether. :)

    I recall how they said detroit was never coming back. after the govt bailout program (which, I must admit, I am pleasantly surprised they made a good decision but that's a different subject), guess what? the auto industry came back & so did jobs. Appreciation will come back in detroit where, a few years ago, the feeling was of destitute.

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  • Account Closed
    Real Estate Investor · Member since 2012 · 189 posts · 32 votes
    13y
    Originally posted by Scott W.:
    people overanalyze things; the truth is, there is no perfect scenario. i crime-ridden area will still appreciate, though maybe not as much as a nice town. you may get 5% appreciation in a great school district & 1% in the ghetto - but the cash flow will be higher.

    I agree that I can find myself overanalyzing from time to time. aside from the observation that people overanalyze things, what would you recommend for selecting an area to invest in? what is enough vs. too much? can we select 5, 7, 20? factors and apply that across the market to determine where to begin investing - (more rhetorical than directed at you, BUT if you'd like to share, that's cool too!)?

    I have my rough formula, but I still haven't determined w/confidence one that I can apply across the market to determine where to invest... yet.

    for now, some of the factors i gauge (in no order) are:
    (flipping)
    median income
    median household size (kinda)
    median home sales for the hh size i'm targeting
    proximity to major work areas (i.e., corporate, factory, etc.)
    unemployment rate & trend
    school stats
    owner/renter ratio
    price-rent ratio

    (rental)
    prox to major work areas
    rental rate for a 2br
    ue rate/trend

    in my first attempt to determine "best bang for the buck" for rentals, i took national statistics and crunched them into a spreadsheet. this thread discusses similar to "selecting a place to invest" topic: http://www.biggerpockets.com/forums/432/topics/72764?page=1#p476100

    NOTE: This is my first attempt to determine "best bang for your buck" areas to invest. I do plan to update my approach and I'm also open to any constructive feedback to consider in revising this list.

    here's the shortcut link to the snapshot:
    http://bit.ly/U81fXi

    Based on other people's feedback I find on this topic, I'll revise the ranking and share w/the group.

    1Reply
  • Allison Shepstone
    Involved In Real Estate · Toronto, Ontario · Member since 2012 · 10 posts · 1 vote
    13y

    Hi there...any chance and of you with advice on here can expand on where you find all of these statistics. I live in Toronto and am looking to invest in Atlanta in a rental property or two. It is a very large city that I am unfamiliar with and there are so many options for investing...single family home in the burbs, apartment near the university, condo downtown with easy public transport, etc etc

    Are there specific websites/resources you use to find all this data? I have been on Trulia, but feel overwhelmed as the city is so large and there are so many options. I am specifically interested in rental rates. Are there places with historical data. Craigslist just doesn't seem like a concrete enough place to rely upon.

    I plan to travel there later this month to look at places....any advice for when actually visiting?

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  • Account Closed
    Real Estate Investor · Member since 2012 · 189 posts · 32 votes
    13y

    just off hand, you can find most of the data from census, zipskinny, school district gov site for area, bureau of labor statistics, zillow, trulia, google is your friend... just really need to know what you're searching for and you'll be able to find most of the data you need online.

    as for rental data, I have been able to find that thru rentometer, trulia, zillow, and definitely craigslist! what you might want to do is get a good range for your target profile. i think CL is a great source b/c you can at least figure what your bottom range is for rentals and what rate you'd be competing with / using for your rent comps.

    hope that helped get you going in the right direction!

    good luck!

    1Reply
  • Allison Shepstone
    Involved In Real Estate · Toronto, Ontario · Member since 2012 · 10 posts · 1 vote
    13y

    Thanks, that really helped. Coming from Canada, we don't have many of those resources so I will definitely check them out!

    0Reply
  • Matt Stoker
    Property Manager · Lehi, UT · Member since 2013 · 45 posts · 2 votes
    13y

    anywhere but Detroit. hahaha

    0Reply
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