Are You Looking in the Wrong Neighborhood?

Gavin Finch
Written by Gavin Finch 

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Spoiler alert: properties don’t exist in a vacuum. The big master bedroom and the spacious living room on that deal you’re about to sign aren’t the only things (or even the main things) that matter to a buyer, whether they’re a cash buyer or a prospective homeowner.

It’s actually the area around your deal that matters more than anything else about the house. After all, people don’t spend all their time in their kitchens, no matter how spacious or beautiful they are. And if you’re not picking in the right areas, you’re spending time chasing deals that aren’t going to bring you very much money. In short, you’re wasting your time.

We don’t want you to waste your time, because that makes real estate investing very frustrating. So here are three not-so-obvious location secrets that you need to remember when considering your next deal.

What’s Going On?

A common misconception is that the area you’re buying or wholesaling in has to be nice. That’s not necessarily true. Some of the best wholesale and investment deals come from distressed properties in distressed neighborhoods. Many people buy or rent in less-than-ideal locations because everyone has to have somewhere to live.

But the area where you’re buying or wholesaling does have to have something that will attract people to it. Very few people want to live in an area that they don’t have a good reason to be in. A property won’t excite potential homeowners if the area is unappealing or boring, and intelligent cash buyers will stay away too. There’s not much money to be made in areas no one wants to live in.

So what creates attractive areas? Here are a few examples:

  • Nearby colleges and universities
  • Emerging jobs and economies
  • Nightlife or bars
  • Agricultural/rural areas with low population density
  • Great school districts
  • Proximity to shopping or entertainment centers
  • Highly rated schools
  • Low crime
  • Parks

The most important part of becoming a real estate investor is understanding that a great price on a property doesn’t necessarily mean it’s a great deal, even if the after-repair value looks good. There are plenty of areas across the US that people aren’t excited to live in. So figure out where they are and don’t pour money and time into these areas. You don’t have to invest in a nice neighborhood, but you have to invest in a neighborhood where people want to live.

Are You Sure This is Safe?

On a recent webinar with Ryan Zolin, Batch CEO Jesse Burrell mentioned that he and his team once made a critical marketing mistake while wholesaling in a new area. They had targetted a neighborhood in the middle of a territory dispute between two gangs without realizing it! It was a very unsafe neighborhood, local property owners (including motivated sellers) were very suspicious of his team, and no cash buyer would have been interested in buying property there because it was a dangerous place to be. As Jesse said, it was thousands of dollars in marketing wasted.

This is an excellent example of why you should know an area before looking for deals and spending your marketing dollars. If you’re busy looking for deals in a notoriously unsafe neighborhood, you’ll have difficulty assigning a contract or flipping a deal, even if you manage to get one.

But what if you’re doing virtual wholesaling? How are you supposed to know an area when you don’t live anywhere close to it? This is where the internet becomes your best friend. Almost every city and town has community forums and groups on Reddit, Facebook, or other internet community sites. These are a great way to gather intel on an area. All you have to do is ask the members what to expect from the specific areas you’re interested in. Even if you don’t participate and post questions, you can read what members post in the group to get a sense of the overall city or town. And if all else fails, private message a few members for more details on the specific neighborhoods or streets where you’re looking for deals. People love to give their opinions, and locals are always willing to share stories. You might even earn some entertaining stories to share with friends as a bonus.

Is it Alive?

A surface-level glance at an area will tell you how nice it is. You can guess the value of the homes, look at the kinds of cars you see, and even look at how nice the stores are. But it won’t tell you much about what’s going on in the area over time. When it comes to picking the right area to invest and wholesale in, whether an area is growing or dying is very important to a property’s ARV.

So how do you find out what’s happening in an area without spending months driving around it? A straightforward answer is to pick areas you’ve already spent months driving around. You probably know your hometown better than anywhere else, so it’s a great place to start. Another simple, low-effort strategy is to look for new construction. When you see the foundations of a new store or restaurant, that’s a good sign. If you see new houses being built or lots being sold, you can assume good things are happening in the local economy. You can also go back to those forums, subreddits, and Facebook groups. Locals love to talk about how their town is growing, especially if they aren’t happy about it.

Another great resource is census data. Because we recently had a 10-year census, the data is relatively fresh and broken down by county. You can see what counties people are moving to and which ones they’re moving out of. Finally, if you’re up for more research, look into the economic reports for the city or town you’re interested in. Finding these might take some work, and they won’t always be available, but they’re invaluable resources if you can find them.

Conclusion

Locking up a great deal is one of the most thrilling feelings in the world. But slowly realizing that you’ve signed a contract for a house in the wrong area is hands down the worst. It’s not a problem you’ll face all the time, but if you keep an eye out for the red flags in the areas you’re looking at, you won’t have to worry about falling victim to the problems we discussed here.

However, the best part of paying special attention to the neighborhoods you’re buying in isn’t the potential losses you’ll avoid. If you’re paying attention, you’ll start noticing promising development trends before anyone else! Investors that don’t pay attention to neighborhood trends miss out on buying early. But if you keep your eyes peeled, you’ll constantly stay ahead of the game and be ready to make deals that will appreciate in value over time. Then all you have to do is lock them up at the best price possible!


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