How to pick a neighborhood

A friend of my dad’s has a beach front house he paid something like $100k for back in the 1980’s and it was brand new.  Even after the bubble burst, it was still worth about $750k.  Could have saved maybe $20k when new and got one across the street, but those are now worth maybe $450k.   I don’t know about you, but I spent most of my younger years hearing real estate stories like this just hoping I could end up in the same spot some day.

I also use to work for little old ladies who had lived in their houses for a long time.  They were sitting on a gold mine since their once-on-the-edge-of-town location turned into a hot spot.

Guess today’s post is really about location and time.

Once I got into real estate, I realized that those two things are what makes all the difference when investing in real estate….and even if all you think you are doing is finding a home to live in, you are investing in real estate.

I kind of think regardless of how long you plan to be in a house, you need to think about its future value.  I see a lot of people, especially first time buyers, who just find something pretty and buy it.  I usually get these people as sellers when they are needing to unload a house they bought when the market was hot.

So, how does the LEXpert go about picking a property for either his clients or his family?  Easy, I look backwards and forwards in time:

1)  Has there been a shift in how many houses in a neighborhood are rentals in the past few years?

2)  Was this neighborhood just as desirable before and after the market sunk?

3)  How has it rebounded compared to other similar priced neighborhoods?

4)  How close are the nearest apartments and/or retail area?  Are those stable or declining?

5)  Are there any changes that could affect value?  School district change?  Zoning change?  I look at vacant land around the neighborhood and think what the worst thing that could happen with that property could be?

6)  What will make the houses in this neighborhood obsolete in the future?  For example, only having one bathroom, not having a garage.  (Think split foyers here too since nobody is ever excited or intentionally looking for one of those.  Lexington buyers only accept those if the lot is really good or it is in a great school district.)

7)  Since ALL neighborhoods go through cycles of decline, where is this neighborhood right now?  Usually after about 15 years, you start seeing houses needing a new roof, updates, etc.  The quicker all the owners do all that, the quicker the neighborhood moves on to the next cycle, which is improvement.   The longer the owners collectively drag this out, the further in decline the neighborhood goes.

8)  How big is the neighborhood?  A larger neighborhood is more likely to impact the surrounding smaller neighborhoods.  A smaller neighborhood is more likely to be impacted by a larger one.

There are many more questions I ask myself, but the bottom line is that you can never go wrong picking a location that will stand the test of time.

Here are some examples from when I have been the buyer:

1)  Did not buy a house in a neighborhood in 40509 that was across from a vacant field.  Checked the zoning, didn’t like it, and now it is going to be a giant apartment complex and several houses by this one are now for sale.

2) DID buy a house in an established neighborhood with lots of growth and new schools in the pipeline……and under market value.

3)  DID buy a house in the only neighborhood in its price range with the best elementary school in the area.

4)  Did NOT buy a house we loved with a golf cart path beside it for that reason alone.

5)  Did NOT buy a great house with a pool that backed to greenspace because I felt the area was too new and I just didn’t see anything about the area that will stand the test of time once all the pretty finishes go out of style.  Plus, it was a small pocket of very nice houses surrounded by houses costing half as much ((BIG RED FLAG)).

 

Hope this helps you 🙂

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