How To Research a Neighborhood

Question

Hello All,

Here are some guidelines I found about researching a neighborhood.

• 1. If it is a mid-sized city, not a metro, you want to have a 20% population growth. If the population is larger than 1M, there should be a 15% growth, larger than 2M should have 10%
• 2. You want to see a 30% difference between median income between now and 20 years ago.
• 3. Median household or condo value should have a 40% increase between now and 20 years ago
• 4. Crime Numbers MUST be under on the decline
• 5. There should be Job Growth THIS YEAR (No one care about 3 years or 5 years) and small cities need to be scrutinized because maybe there is one strong employer
• 6. Invest in a block of town that has a larger population
• 7. Compare the median income to the median home value (600k median home value and 230k median income? No way!)
• 8. You should want a household Income in the neighborhood is between $40k and 70k
• 9. Median Contract Rent should be between $700 and $1000
• 10. Don’t invest in areas that have an unemployment rate of 2% higher than the nearest major city

What do you guys think of these guidelines? I've never invested before, but they seemed credible. However, I've noticed that there are no areas like this where I live.

Joe Villeneuve · Answer

I have questions for each one of your criteria.  Actually, it's the same one for each question..."Why"?   OK, I guess 2 questions.  The second questions is also the same for all your criteria..."What does all of the individual criteria tell you"?  Ok, maybe a third.  "Does any of this criteria have a universal impact"?...and if the answer to that question is "no", then I repeat my first two questions...for each of the criteria.

Joe Villeneuve · Answer

why wait a year?  How many times to make a friend?

Joe Villeneuve · Answer

@Justin Mahone @Jill F. @Andrew Fava @Stephen Brown

Albert Einstein once said that the greatest invention of the 20th century was compound interest, and it was the 8th Wonder of the World.  What he said after that was more important.  He believed that those that understood it, would live off of those that didn't.

Every decision you make in REI should be with the "compounding effect" in mind.  Cash (your seed money) goes into a deal, and comes out with "friends".  Then you reinvest your "seed money" with its new found "friends" in the next deal, and when that money comes out it too will come out with more friends.  Repeat this over and over and you will have a compounding effect.

One of the greatest advantages of this is in the end, you never spend a dime of your own money at all.  You use it too infinity, but you never spend a dime of it.  What you do spend, is "other people's money"...your profits.  That's OK since your seed money, by not ever spending it (using it instead) will continue to generate new profits with every use.

Spend you seed money (one use), and it's gone forever, and you need to generate new seed money...which costs you money every time you need that "new money".  Use it, and even if the original seed money cost you (even if it cost you a lot), that cost is reduced per use every time you reuse it.  If you're cash returns are always positive with each reuse, then that initial cost, no matter how expensive it was, becomes insignificant.

The power of compounding is enormous to REI.  A. E. was pretty smart.

Andrew F. · Answer

Really curious to know what this number sequence means lol

Joe Villeneuve · Answer

I Don't see any value in using numbers with % behind them when analyzing properties are markets...and of the two analysis, your market analysis is far more important.  Percentages lie, and they tell you nothing concrete.

For instance:

1 - How important is the school district rating to a retired couple or a single person living alone?  How much will this increase taxes in that market, and have no value to either of the two I just mentioned?

2 - How important is the local employment opportunities to a professional that will usually commute and/or work out of their home?

3 - Median rent collected is useless.  Every market is different.  The same house on the east or west coast can rent for twice that of the one in the midwest.  For that matter, the same house in the same city half a mile away can be a different market, and have different rent...for the same house...and both make money.

4 - Household income levels are dependant on the same things as #3.

5 - Cost of living varies for the exact same properties in different markets.  (see #3...again).

....actually, #3 says it all...or at least most of it.

You need to learn to analyze based on the numbers with $$$ in front as a series of spreads between what you put in (your cost) and what you get out (your profit) for flipping and/or holding.  You need to learn how to do this for each and every strategy you can/will use in any and every market you analyze.  REI in the end is really little more than applied math...with $$$ in front, not percentages behind.

To do this, you will need to learn how to do the following:

1 - Analyze Markets to tell you where to invest2 - How Money Works.  These are the strategies you will apply in these markets.  They will tell you how to invest.3 - How to design and stick to a true REI Plan.  This tells you when to invest using #'s 1 and 2 above.

...and all three must work as one, with each equally depending on the other two for your success.  Lacking in one or more will cost you time, money, and more...and you probably won't realize it.

Lastly (there' a lot more, but for now...), don't fall in love with any property.  This means Never use words you find in RE agents brochures, like "large, beautiful, great, up and coming,...etc...".

OK, one more "lastly".  Treat money as if it is a verb, not a noun.  When it becomes a noun...you lose.

...and while you're at it, memorize this number sequence...and treat it as if it is the combination to great wealth...because it is.

1073741824

Joe Villeneuve · Answer

PM me for the detailed answer.  You'll be quite impressed.

Mitch Messer · Answer

Indeed: I'm a pretty friendly guy, so my workers could probably make a friend every day!

Mitch Messer · Answer

Hey @Joe Villeneuve, I'll bite!

If I started with one "worker" and each made exactly one "friend" every year, then might I see this magic sequence in my bank account over the same period of time when others might be just getting down to zero debt?

Justin Mahone · Answer

@Joe Villeneuve what is the sequence code for ?

Joe Villeneuve · Answer

OK.  The number is a result of what Einstein referred to as the greatest invention of the 20th century, and the 8th wonder of the world.

The impact it has on REI stems from following the  2 Golden Rules of REI (as I see them), the first one being to "Never, ever, spend your seed money.  Use it to infinity, buy never spend it.  You spend profits.  You invest and reinvest your seed money".

How To Research a Neighborhood

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