When you invest in real estate, you invest in more than the property itself – you invest in the neighborhood too. That’s why it’s important to analyze a neighborhood’s price. If you overlook it, you may find a good egg in a bad area which means you won’t have the ‘great return on investment’ you’d hoped when you bought the home.
So how do you analyze a neighborhood price? Read on to find out.
Understanding A Neighborhood Analysis
It may seem strange to analyze a neighborhood when you’re buying only one home, but it plays an important role.
If you’re a buy-and-hold investor, you’ll want to invest in an area that’s attractive to tenants. If the crime rate is high or the schools are of poor quality, you may find it hard to fill the home with tenants, which is the opposite of what you want. You’d rather invest in properties that will hold their value and be attractive.
The same is true of the fix-and-flip strategy. You could buy a home and fix it up so it looks like a million bucks, but if it’s in an area people don’t want to live in, it’s not going to get you very far.
The neighborhood analysis is the key to unlocking the home’s potential.
The Factors Affecting A Neighborhood Price
Just like when you price a home, numerous factors go into a neighborhood price. Here are the top factors:
- Location – This is the number one factor. It’s all about the location. If you’ve ever known someone to move into a small house in an attractive area, you’ve seen it first-hand. Many people pay for the area first and the home second.
- Social – The area’s ‘vibe’ makes up its social piece. Is it a desirable area – or an area everyone wants to live in? Are the schools in the area top-notch or is the crime rate incredibly low? Buyers and renters look at these factors.
- Physical – Are there any physical features that take away from the home’s likeability? Is it near a road, railroad tracks, or loud noise?
Figuring Out A Neighborhood’s Price
Now that you know what affects a neighborhood’s price, it’s time to learn how to find it. There are plenty of ways:
- Public information – Anyone can gather information from the internet even using county websites, such as the county assessor or school-rating sties. Gather as much information as you can about an area online and compare it to the other information you receive.
- For sale signs – Drive around the area. Do you see a lot of ‘for sale’ signs? That’s often an indication that something is wrong. It may not be – it may be that everyone is moving at the same time, but dig into it further.
- Construction – Do homes in the area have a lot of construction going on? That could be a good sign. It usually means people are interested in staying in the area but want to make their home more livable.
- Thriving businesses – If the area has a lot of businesses closing, it’s not a good sign. The area could be suffering financially and may not be desirable for families. An area with a lot of new businesses, however, is a good sign of a booming industry and good potential for real estate investors.
- Talk to professionals – It never hurts to get a professional’s opinion about an area. Real estate agents are an obvious choice, as are appraisers, inspectors, and even mortgage loan officers. Anyone who deals with properties in the area usually knows what’s going on.
What Are The Qualifiers Of A Good Neighborhood?
Every buyer has a different opinion about what makes a good neighborhood, but the most common good qualities include:
- A close-knit community – If the neighbors all get along and communicate with one another, it often raises the area’s appeal. A close-knit community is important to many people since it’s where they live and raise their children.
- Little noise – Loud areas often have lower values because no one wants to live there. It provides peace of mind knowing an area is quiet, peaceful, and a nice place to raise children.
- Convenience – People want amenities nearby, such as the grocery store, library, banks, and churches. They don’t want to have to travel 30 minutes or more for a quick errand – it suddenly turns into an all-day affair. The more businesses surrounding an area, the more valuable the area becomes.
Should A Neighborhood Price Stop You From Investing?
You’ll have to make decisions about homes and the areas they are in on a case-by-case basis. For some investors, who only want the best neighborhoods to invest in so they never have to worry about filling the home with tenants or selling a fix-and-flip.
Others like the challenge and don’t mind if an area isn’t perfect. Of course, a perfect area means higher prices, which means you need more money to invest, but you’ll make a greater return on your investment. A ‘less-than-perfect’ area may not offer as large of a return, but it will have a lower barrier to entry too.
Pay close attention to all details when investing in an area. The neighborhood plays a big role in a property’s ability to give you a good return on your investment. If you’re buying and holding, you’ll want an area renters to want to live in. If you’re fixing and flipping, you’ll want an area that people want to buy and will pay the prices that give you a decent return.
It’s no different than looking at a home’s value. When you look at the neighborhood’s value, it’s like looking at the big picture which you should do for any investment, real estate or not.