Do Schools Really Affect Property Values?

In 2009 as I worked to complete my masters degree from Georgia Tech, I undertook a large research project to study the effects of the recession on housing values in Metro Atlanta. The purpose of the research was to identify changes in the demand for certain characteristics of residential properties as the market was falling. Essentially, we were interested in identifying changes in what buyers valued in a residential property in 2009 versus 2006.

In conducting the research we targeted Cobb County, a suburban county about 20 minutes northwest of downtown Atlanta. We looked at approximately 150 home sales from August 2006 and 150 home sales from August 2009. Using statistical analysis, we analyzed characteristics such as bedrooms, bathrooms, square footage, age, stories, garage, basement, general interior and exterior, school district, crime stats, median income, etc.  One of the most interesting takeaways from this research was the profound effect that a quality school district can have on the housing values in the surrounding community.

Quality Schools Do Affect Property Values

In our research, we used the website SchoolDigger.com which uses a 5-star rating system based on a number of different factors including enrollment, student/teacher ratios and test scores.  What we found was that properties near schools with a rating of 4 or 5 stars were almost completely insulated from declining values while those near schools with 1-3 stars experienced massive losses in value over that 3 year period.

As a full-time real estate investor, this information has dramatically affected my buying criteria.  While I am fully aware that there are many, many other factors to consider when buying an investment property, school districts have become much more important in my decision making.

For example, I was looking at a HUD home last week in Marietta, GA (Cobb County) as a possible long-term investment. It was a nice split level home built in 1980, located in a stable neighborhood with good comparable sales, but there was nothing particularly special about the house itself. Truthfully, if this house had been located in another Metro Atlanta area hit harder by foreclosures, I probably wouldn’t have bothered to look at it.  Or if I had considered the house in a less attractive area, I would have expected to pay at least $25,000 less than what I was prepared to bid on this property. In reality I was okay paying a slight premium for the property because of the location in a 4-star school district with strong comparable sales. Fully realizing that I would probably sacrifice some level of monthly cash flow in the short term, I concluded that the stability of real estate values in this area would make for a better long term investment.

Unfortunately, another investor thought this was a good buy as well and ended up bidding higher than I was willing to pay.  This perhaps serves as a great reminder that regardless of how good an area (or school district) is, the numbers still have to make sense.

Bottom line?  Yes, schools are an important consideration in the purchase of a property; however, several key factors need serious thought before placing that final bid.

Photo: Kamoteus (A Better Way)

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.