The idea of buying out of state could be an intimidating prospect for many real estate investors , but the reality is that most of the things that can be wrong could happen regardless of whether you're investing in your local area or 1000 miles away. There is the possibility of a poor tenant in the local market or an AC unit will go out no matter where the property is located. Even though it could be expensive, neither is detrimental to your investment, and both are a possibility to overcome so long that the property is located in a favorable place. You can get rid of tenants who are not good. It is possible to replace a damaged furnace, but it's not possible to relocate a home that is located in a shady neighborhood. In the majority of cases the only way out is to dispose of the property and reduce your losses. This leads me to the biggest error out-of-state investors make. We've all heard the saying “location, location, location "location, location, location" is the most crucial aspect when purchasing real estate. That is particularly true of Real Estate Investment Properties. Selecting a neighborhood that meets your investment needs is among the most important choices that you'll make when you're an investment. The kind of neighborhood and type of property could be the distinction between solid, reliable cash flow or heartache expense and loss.
Yet, how do you tell whether you're investing in a desirable area, even in the event that you're not a resident? This is a problem for investors who are not from the state. I've heard a lot of horror stories about how investors believed that they were investing in a great location but then discovered later. That they bought under the hood , and now they're stuck. It usually happens as a complete shock which leads to the all too frequent expression "I thought it was a B class neighborhood! ".
So, how do you tell whether you're purchasing the right property in the right location?
In the world of real estate, homes and communities are typically classified as A B, C, A and D. These classifications of neighborhoods are an excellent starting point, however they are not without their flaws. They're extremely subjective and the same neighborhood that is a neighbor's B-Class area could be a C-Class community for another. These classification systems generally depend on a variety of variables which affect the ratings.
The issue is that there isn't a single place to go to find the information you need. It is your responsibility to conduct diligence. Although some websites attempt to rank neighborhoods based on a variety of criteria, I haven't discovered these sites to be extremely reliable and often cause bad choices. I've witnessed instances in which a desirable, prosperous, owner-occupied neighborhood is judged exactly the same way as a distinct, dangerous neighborhood. The takeaway from this is that in this day and time of instant information there isn't a short route. You can't beat conducting your own investigation.
Let's look at the main factors that determine the overall quality of the neighborhood.
The rate of criminality
Crime is the primary factor that determines the neighborhood's quality. You want areas that people are keen to live in, and which draw good tenants. Trulia's heat map can be an acceptable source of information regarding crime rates , however it relies on the data of the local police authority. Since every city reports crime statistics in a different way as well, there may be some variations between different markets. Alongside Crime heat maps a good resource for information performing the Google search on the area you live in. If you're in a neighborhood that's not safe there's a good chance you'll find stories about assaults, shootings and robberies. In the best neighborhoods, you'll be able to find information on development projects and new businesses coming in, and cultural events happening.
School evaluations
A-Class neighborhoods generally have schools that are good but that's not always the situation. Certain cities have notoriously bad schools, and people living in areas that are A-Class typically send their children into private school. While good schools are essential for some investors, the truth is that, most of the time, schools are not the primary criteria for renters. As per the U.S. Census Bureau, two thirds of renters do not have children, which means that schools aren't important for their lives. Additionally, people live where they are able to afford. If someone can only afford $900 per month in rent, they can't be able to afford living in fantastic school districts with rents of at least $1200 per month. The majority of property managers require tenants' income to be three times the rent amount. This means that tenants must make $2700 per month to be eligible for a rental home that costs $900. However it is necessary to make 3600 dollars per month to qualify for a rent of $1200 per month. This is a huge income gap that many people cannot afford. Investors often say they'd like C-Class properties with top schools, but they don't realize that C-Class areas do not have excellent schools, or else they wouldn't qualify as C-Class communities.
Amenities
The amenities in the area tell an awful lot about the kind of community it. If there are pawnshops and liquor stores as well as check cashing establishments in the area that's an excellent indication that the area isn't an A-class neighborhood. On the other hand A-class areas will usually include malls as well as anchor department stores such as Trader Joe's and Starbucks nearby. Visit the neighborhood to see what's nearby.
Owner-occupancy rates
A-Class neighborhoods are typically composed of mostly single-family houses. B-Class communities will consist of a mixture of rental and owner-occupied properties, with a few multi-family homes. C-Class neighborhoods are primarily rentals. Finding the occupancy rate for a neighborhood could be challenging, but. Websites such as City-Data frequently have information about occupancy rates for owners, but it's usually only at the level of zip codes, which isn't really useful as communities can differ from block by block. Google Maps street view can tell much regarding the streets. Neighborhoods that are occupied by owners will exhibit several obvious traits. There is usually an element of pride in homeownership with well-maintained houses and well-groomed front yards.
Homes of different types
A-Class neighborhoods have more modern bigger homes. They are typically three to four bedrooms with two or more bathrooms. They also will include garages instead of carports. B-Class homes typically have three bedrooms with 1 or 1.5 baths, while C-Class are generally 2-3 bedrooms with one bath. The square footage of a home can differ based on the market, so it is important to find out what is popular in your particular area. A simple and straightforward yet often ignored method of understanding a neighborhood's class is rents and prices. This is the most reliable indicator of the overall quality of an area. Take some time to familiarize yourself with rent and price intervals. Find out the median cost and median rent for your local market. Utilize sites such as Zillow to determine rents and prices within your locality. Find out where they are with the medians of the market. When the average rent for a property is $900, and your home is rented at $600, be certain it's in an area that is not considered to be a top-quality area.
Finally, speak to a property owner who knows the neighborhood. You can ask them how they would define the area and the kind of tenant it might be attracting. Also, ask them about the difficulties they see in dealing with a property in the neighborhood.
Finding a neighborhood with a great reputation is the primary aspect for the achievement or the failure of your investment. However, when you've done your homework there's no reason for you to be shocked to discover that the area that you purchased in isn't exactly what you anticipated even if you're an outside state investor. Have you ever purchased something from an area only to find out that it was not what you had hoped for? If so, what would you do?
