Presence of specific companies as a way to estimate neighborhood?

Question

I'm currently testing out a theory I have about whether the presence of certain name-brand companies in a neighborhood is a useful proxy for its class.  I figure these companies spend much more on (and have much more experience with) identifying neighborhoods that fit their target demographic, and I as a new investor am happy to ride on their coattails.  It's a short list so far, and I'm hoping folks in these forums can help me add to it.  So far I feel like the neighborhoods I've driven through have mapped fairly closely to this proxy.  I know it's a bit of a lagging indicator, however since I'm investing out-of-state I need a strategy for quickly assessing the rough potential of many unfamiliar markets, after which I'll dive into a few specific markets in greater detail (crime rates, population growth/decline, path-of-progress info from city councils, etc.).

At the moment, I have the following:

-Whole Foods: A or B-class

-Dollar Tree / Dollar General: B- or C-class

-MoneyGram or other check-cashing companies: C-class

-Bail bonds companies- C-class

-Psychic readings: C-class

I'm trying to stick to companies that people patronize frequently (i.e. a Tesla or Mercedes dealership would be less-useful, since people only purchase cars infrequently).

My questions:

1) So far, I've only been able to identify B-class neighborhoods if I find an A-class company and a C-class company in the same shopping complex.  Can you think of any businesses which would map to a solid B-class neighborhood by themselves, without me needing to do this averaging?

2) Has anyone used a similar strategy in the past, and have you had any success with it?

Thanks y'all!  Also, let me know if you're reading this from Atlanta, Charleston, Savannah, Jacksonville, Sarasota, Tallahassee, Huntsville, Memphis, Nashville, Austin, Salt Lake City, or Boulder.  I'm doing a multi-month scouting trip for my first out-of-state market and would love to meet for coffee or a beer.

Alex Lien · Answer

Very interesting way to identify the overall appeal of an area.

Personally I'd stay away from using big-name stores like Target/Walmart and national supermarkets just because there might be enough demand in the surrounding areas that it makes sense for them to set up a large store in an area that's cheaper to buy-in.

Focus more on brands that set up stores with specific criteria and generally follow the same rules for every location (Five Guys, steakhouses like others mentioned, lower-valued big-name stores like dollar general/Aldis, breweries, Coffee shops, specialty stores like best buy/home improvement stores, etc)  These will give you a better idea of the income in those areas as well as the overall appeal.

This is a fantastic idea and with enough data you could have a pretty efficient system set in place to identify if an area is where you want to invest in.

David Dawkins · Answer

In the southeast, Chick fil a is a company you can add to the A/B bucket.

Steve Morris · Answer

You forgot SBUX.   Someone actually did a study on them and Whole Foods and property values as an indicator.

I don't know if that works since SBUX are replacing bank branches on every corner it seems.

I'm in OR and I kinda like looking at employer locations - Like units between Intel and Nike factories are pretty good to buy in.

David Goodman · Answer

Smoothy King always seems to be right on the edge before a neighborhood changes here in Nash. Definitely not a scientific observation!

As far as your other observations... here in Nashville, house appreciation is moving faster than businesses. My properties are near Murfreesboro Pike/Thompson Lane. Historically this has not been considered a very desirable area. Plenty of Liquor stores, dollar stores, advanced cash, etc. But these businesses have been there for a while.

I think you should be more interested in which NEW businesses are moving in... If a Smoothy King rolls in, I will be very pleased. I wouldn't be surprised if it moves in next door to a psychic reading establishment that's been around for 20 years.

Cindy Harney · Answer

@Richie Thomas I think this is a very interesting topic and I have actually thought about it  before, but never had time to really dig in. I will say,  these days Dollar Generals plug themselves in all of those locations so they would certainly not be one to follow.

Doing my research in Savannah and the surrounding areas!

Bastian Kneuse · Answer

I would add places like Publix, Starbucks, Panera Bread to your A/B bucket. Fast food restaurants, Waffle House, etc can be found in C.

I also always do a search on Google maps what type of hotels are nearby.

Angela Dulin · Answer

Hi @Richie Thomas, I am an agent in the Mid TN/Nash area. My firm works exclusively with investors for flips/rehabs, buy/hold and teardown for new builds. First off, I love your data driven approach! :) Several things to consider. I work with multiple investors from out of state so I understand the need to fully understand neighborhood stats when considering a property for purchase. Have you considered scouting new construction shopping centers in general? As @Cindy Harney mentioned certain retail outlets will plug in almost anywhere. I am not sure what your price points are, but when I am scouting properties for my out of state investors one of the factors I consider is where the neighborhood is GOING more so than where it already is. You can find amazing opportunities in up and coming neighborhoods that may not show up in a traditional data search. For example: A few years ago the west side of town was a bit of a toss up. A New shopping center came in and the property values skyrocketed! Same on the east side. New Builds and tear downs drove a rather "slum" part of town into one of the most desirable areas in Davidson County. Both of these areas are STILL growing. From an investment point of view, purchasing flips/rentals in these areas allowed for a massive influx in property value in a relatively short period of time. Homes that went for 150k and below are now falling in the mid to high 600k range and higher after reno, the rental market followed this trend. Though these indicators may be difficult to assess through traditional data searches, having someone on the ground who is familiar with your target locations can prove to be invaluable for a long term rental approach. Another indicator is the rental market in general. Several of the investors I work with from California lean towards college towns for rentals. Others who are looking for flips lean more towards what I mentioned above, new construction. If the regional list you mentioned above is an indication of where you are looking to invest, I would recommend finding some fellow BP investors or agents in those areas who can shed some light on neighborhoods "on the rise" that may be harder to identify via google. Feel free to reach out if you have questions. I would be happy to help.

Angela

Bryan Noth · Answer

@Richie Thomas this is a model some investors use and is quite common in commercial sales where they are referred to as an anchor tenant.  I would strongly second Starbucks as an addition to the list and suggest Costco.   If it’s a growing area, Target is a good indicator of growth but may be less predictable of specific asset class.

Sean Tagge · Answer

I like this idea

I agree with the whole foods approach usually in B+ A- areas.

Dollar stores are a little more spread out but more frequent in C areas.

Our bail bond companies are mainly next to the courthouses downtown so don't really correlate there.

Maybe another one to look into is fancy coffee shops.

Cordell Martin · Answer

@Richie Thomas

Restaurants - specifically steakhouses, bars and coffee.

Think corner bar vs craft breweries - craft breweries tend to be a more positive.

Steakhouses -

A - Ruth Chris, local independent steakhouses specializing.

B - Outback, Lonestar, Texas Roadhouse, though these can be in A as well, but the A list places are typically not in B class.

C - We’re a restaurant and have a steak or two on the menu, Friday night is prime rib, etc.

D - no steak 😕

It’s not a science, but a little from my experiences...best of luck!!!

Presence of specific companies as a way to estimate neighborhood?

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