How To Know If You're Investing In A Good/Bad Neighborhood

Question

Hey!

If I'm investing out of state, or somewhere I've never been in person before,

Is there some way to figure out if I'm buying in a good or bad part of the city?

I could check google street view, but is there a way I could quantify this in some sort of way to be able to compare apples to apples?

I'm curious to see what some of the solutions are!

Cheers,

Bryan Martin · Answer

Not an exact science, but I try to invest in highly rated school districts.  Doesn't guarantee anything, but increases the likelihood of having more choices for tenants with parents wanting to get their kids in a good school.

Bruce D. Kowal · Answer

I know what I'd do.  I'd park my car in front of the property, or close by, and spend the night in the car.  Maybe Friday/Sat or Sat/Sun.  Some places look quiet, in daytime, but become a whole 'nother world after dark.  Just sayin'

Will Barnard · Answer

Nothing beats boots on the ground. RE investing is a big investment and if doing so from afar, spend the time and money to get on a plane and spend some time in the area. You certainly need to build a team in the area BEFORE you invest as well.

Some things you can do from your computer are checking the crime statistics, population growth, income levels, and other micro data. Contacting the local chamber of commerce is also a good step. Contacting the police department would be yet another good idea. Information is key to success, the more you have, the better armed you are to make wise investment decisions.

Colton Hahn · Answer

Of course boots on the ground is the best way to tell. I would go on forums for those areas and see what people are saying as well.

Some great metrics would be population growth, job growth, rent growth, income growth etc and that will tell you a lot about those areas as well! We use that and we have achieved an audited 31% IRR while targeting areas with those metrics

Joe Hammel · Answer

@Zackarias Aitchison

Look at SFH property values within .5 miles. This will paint the biggest picture.

$20k houses = yikes

$100k houses = cool

$300k houses = best for short term

Obviously this will scale depending on market, but most likely you’re familiar enough with prices in your area to figure out the scale.

Next can look at schools. Crime maps and take a drive down GOOGLE street view.

Drew Sygit · Answer

@Zackarias Aitchison

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

You can also use our info sources to evaluate any market.

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

Lawrence Potts · Answer

@Zackarias Aitchison

I would recommend asking property management companies you’ve screened and approved where they like to manage. They’ll tell you where not to buy because they don’t want to and don’t like to manage in those areas.

Also it depends on what type of investing you are going in to. If you are looking short term, AirDNA is a great resource as well.

Zackarias Aitchison · Answer

@Colton Hahn

Those are definitely the right metrics to be looking at. I'm going to be making sure I look at population growth, job growth, rent growth, and income growth when vetting OOS investments.

I've been scrubbing through a lot of the websites suggested by others on this thread and another useful metric I've been finding is the ratio of homeowners to renters. Some communities are dominated by homeowners which would make for a very different investment landscape than a community with few homeowners.

Thanks for your input man! Cheers!

Cody Hunter · Answer

Timeline,if available, offers the ability to see how the property and area has changed over the prior years.

Malcomb Stapel · Answer

@Zackarias Aitchison  I agree with the boots on the ground. I live in a hot market in the midwest, I literally have people from the next town over who will text me addresses that they find on Zillow. Usually they are for rough neighborhoods, which is why the numbers look so attractive to them initially. I've also been seeing out of state investors buying up houses that I am passing on. Some of the places really make me cringe.

How To Know If You're Investing In A Good/Bad Neighborhood

Most Popular Reply